Obsolescence Equals Opportunity_final (002)
Evaluating Performance by Quality:
• Additionally, as illustrated in Chart 8, vacancy rates are significantly lower in buildings built since 2015, even compared to legacy trophy assets. These premiums are evident across a wide variety of markets, including Manhattan and Midtown Atlanta. In both cases, new development vacancy is approximately 700 basis points below legacy trophy vacancy rates. 14
The benefits of garnered by the highest-quality, best assets are clear. • As shown in Chart 7, the rent premium on Class A leases of seven years or longer has doubled over the past two years from 16.4% to 35.2%. • In the suburbs, new assets outperform other Class A buildings by even more: 46.9%.
CHART 7: RENT PREMIUMS FOR NEW OFFICE ASSETS Class A direct new leases with 7+ years of term
Total U.S.
CBD
Suburbs
10% 15% 20% 25% 30% 35% 40% 45% 50%
10% 15% 20% 25% 30% 35% 40% 45% 50%
10% 15% 20% 25% 30% 35% 40% 45% 50%
$0 $10 $20 $30 $40 $50 $60 $70 $80
$0 $10 $20 $30 $40 $50 $60 $70 $80
$0 $10 $20 $30 $40 $50 $60 $70 $80
0% 5%
0% 5%
0% 5%
2018-2019 Comps Average rent down 9.7% Average rent up 4.9% 2020-2021 Comps
2018-2019 Comps
2020-2021 Comps
2018-2019 Comps
2020-2021 Comps
Average rent down 11.2% Average rent up 3.6%
Average rent down 2.8% Average rent up 6.8%
Older Assets
Newer Assets
New Construction Premium
Source: Cushman & Wakefield Research
CHART 8: VACANCY SUB-10% IN BEST, NEWEST BUILDINGS
Class A Legacy Trophy Development (Since 2015)
20%
15%
10%
5%
0%
NYC - Midtown
Atlanta - Midtown
Source: Cushman & Wakefield Research
14 Data as of Q3 2022.
The Next Evolution of Office and How Repositioning and Repurposing Will Shape the Future | 17
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