Owners of trophy office towers in big U.S. cities may have reason to feel like it’s 2019, the pre-pandemic time when workers pushed through crowded lobbies and elevators to log in for the day.
Class A+ buildings in major markets are exceeding 90% of pre-pandemic use on peak days, according to a midyear report from building security firm Kastle Systems. That use reaches 94% on Tuesdays, the top day for in-person work.
The report offers hope for landlords throughout the country that have struggled to overcome historically low demand for corporate space as remote and hybrid work habits have persisted more than five years since the onset of COVID-19.
It also highlights wide gaps between top-tier properties in the largest cities and the broader U.S. office market.
Kastle’s report is the latest example of the so-called flight to quality, and the latest sign of office properties — the best ones, at least — slowly returning to pre-pandemic norms.
Newer, well-located properties filled with amenities have attracted an outsized share of overall leasing activity as a number of companies have sought to use more attractive work space as one method to entice employees back to the office.
“For the best buildings in the best markets, it’s basically back to normal on peak days,” Kastle’s executive chairman, Mark Ein, told CoStar News.
Some of the largest employers that can afford top-tier space, such as JPMorgan Chase, Google, Amazon, Starbucks, Microsoft and Salesforce, have led a national push to curtail remote work.
The Kastle report indicates that office use has stagnated across all buildings that it tracks nationally, but that the fanciest, highest-rent buildings are essentially back to peak usage on higher in-person workdays.
“The best buildings that have the highest rents are occupied by companies that value the importance of having people at work,” Ein said. “We believe that’s going to spread. You start to see other markets and other asset types taking the lead and others will follow.”
National office use gauge
Kastle’s data has been used as a national barometer for office utilization since the onset of the global health crisis.
Using anonymous key-card data from its landlord clients, the Falls Church, Virginia-based security technology firm has provided monthly reports comparing the 10 largest U.S. regions with pre-pandemic office usage patterns.
The 10-city average weekly occupancy is about 50%, a number that jumps just above 75% for Class A+ buildings, according to the Kastle report. On Tuesdays and Wednesdays, which the report describes as anchor days of the hybrid work week, Class A+ attendance is consistently above 90% of pre-pandemic levels.
Overall Tuesday utilization has stagnated at just above 60% for all buildings, up less than 5% from 2023 levels, according to the report. Major cities such as New York and Chicago continue to outperform the national standard on Tuesdays, at around 70%.
Among all classes of buildings, average weekly occupancy in Texas has outpaced national standards, with Houston, Austin and Dallas around 60%.
National utilization remains lowest on Mondays and Fridays, days when attendance is just a fraction of the norm from early 2020.
Cream of the crop
Kastle said its customers are in more than 3,500 buildings across 138 cities. Among the 10 markets used for the national barometer, 2.3% of structures are considered A+, meaning they have modern designs and the highest-quality amenities.
“I think the implications for commercial real estate are clear,” Ein said. “Demand is growing, and the issues facing lower-quality buildings are also real.”
In Manhattan, trophy properties’ share of first-quarter office leasing rose to about 62%, the highest percentage in decades and nearly double the share from a year earlier, according to Avison Young.
A scarcity of high-rent space led the owners of the country’s tallest skyscraper, One World Trade Center, to offer blocks on the 89th and 90th floors as offices for the first time, saying they expect the spaces to command rents in the mid-$100s per square foot, far above the building’s average in the mid-$80s, CoStar News reported.
In Chicago, a historically high supply of unwanted office space hasn’t slowed demand for high-dollar workspace in modern towers along the Chicago River. Properties such as Salesforce Tower, 150 N. Riverside Plaza, Bank of America Tower and River Point have little unleased space.
Even trophy towers that have lost tenants to newer buildings, such as 300 N. LaSalle St., have seen new tenants quickly gobble up available space.
Factors such as high borrowing and construction costs have all but stopped the development of office towers in recent years, Ein said, but continued demand for the best space could break that cycle.
“In a lot of markets, A+ space is at a premium,” Ein said. “As rents continue to go up, it’s going to make sense to build new or make significant renovations.”