Office Tenants Demonstrate Strong Preference for Higher Floors
Law firms and financial sector companies dominated “high-rise” leases and paid highest rents.
Office leases on higher floors have outperformed other leasing activity since COVID, and in some cases have yielded greater effective rents, CompStak said in a recent report.
CompStak’s analysis of office leases signed from 2018 to the first quarter of 2024 in four major U.S. office markets – Manhattan, San Francisco, Los Angeles, and Chicago – found a preference for higher floors, underscoring the often-mentioned post-COVID flight-to-quality trend.
The commercial real estate data platform also found that the legal and financial sectors were the predominant players in high-rise leases, paying the highest rents across all four markets.
Over the last year, of the most valuable office leases on upper floors in each market, three were signed by law firms, with an investment bank rounding out the group.
In Manhattan, law firm Paul Weiss agreed to lease floors 31-44 at 1345 Avenue of the Americas, a 50-story building, in a deal valued at $1.08 billion.
In Chicago, law firm Winston & Strawn agreed to lease floors 43-48 at 300 North LaSalle Street, a 60-story building, in a deal valued at $81.5 million.
In San Francisco, investment bank Stifel agreed to lease floors 33 and floors 36-38 at One Montgomery Street, a 38-story building, in a deal worth $49.7 million.
In Los Angeles, law firm Cox, Castle & Nicholson agreed to lease floors 21 and 22 at 2029 Century Park East, a 44-floor building, in a deal valued at 43.1 million.
In San Francisco, CompStak data yielded mixed findings on the general health of the market. While it led to effective rents for recently signed high-rise leases and current rents paid by top-floor tenants, it was the only market to see a decline in rents versus pre-COVID levels.
San Francisco’s average weighted effective rents over the last eight quarters fell 5.7% to $86.88 per square foot versus pre-pandemic.
CompStak’s most recent data highlighted Manhattan’s dominance. From the second quarter of 2023 to the first quarter of 2024, Manhattan was home to the largest high-rise office leases, with the top five transactions ranging from $187 million to over $1 billion.
Manhattan’s average weighted effective rents rose 6.5% versus the pre-COVID period to $83.21 per square foot. Los Angeles and Chicago’s central business district saw the same metric rise 9.1% to $50.03 per square foot and 7.1% to $39.01 per square foot, respectively.
Tenants’ preference for higher floors was not reflected in concession ratios, CompStak found, as concessions for leases signed on higher floors matched or exceeded those of other office leases.
Post-COVID concession ratios increased between 220 basis points and 440 basis points, the data platform added.