Class A Office Buildings Starting to See Higher Vacancy as Office Market Distress Spreads

Through much of the pandemic, Class A office buildings in central business districts fared better than their less-pricey peers. However recently, the distress on the nation’s office market has spread to high-end office buildings amid increasing defaults and vacancies — rising interest rates and yields on bonds and other securities making real estate look less profitable, adding to the challenges for landlords trying to refinance expiring loans. According to Moody analytics data, leasing within the Class A central business districts sector fell in the 4th quarter of 2022 for the first time since 2021, the hope of investing heavily in tenant amenities and modernizations to take advantage of the growing trend of a flight to quality by tenants only working for some buildings, especially those developed in the past decade. Pressure on office occupancy is expected to continue for much of 2023, reduced space requirements initially due to remote work schedules now joined by the cutting back of expenses among big technology companies and worries about a recession.