Rental rates inch up in national office market, thanks to flight-to-quality trend - Dallas Business Journal

In preliminary third-quarter data, Moody's Analytics Inc. found asking rent across 79 office markets it tracks rose 0.4%, to $35.03 per square foot. Though not a major increase, it's still quarterly growth amid an uncertain period for the broader office market and isn't far off from quarterly rental-rate growth observed pre-pandemic, at least according to Moody's analysis.

Between Q2 and Q3 2022, Class A rents grew 0.8% in CBD markets tracked by Moody's, while only growing 0.02% in Class B and C properties in those same CBDs. How this continues to impact the U.S. office market going forward will be determined in part by where the economy goes, and how hard a potential recession will affect companies. LaSalvia said he's anticipating a mild recession, which will potentially push real estate decisions further out, but any kind of office-market hemorrhaging isn't on his radar.

And while there was an uptick in physical office occupancy the week of Labor Day, when many company leaders tightened their in-office expectations, that has since stagnated. Kastle Systems International LLC, a commonly used tracker of physical office occupancy since the pandemic, found occupancy averaging 47.2% across 10 cities the week ending Oct. 3, compared to 47.5% the week after Labor Day.

"Higher quality buildings, those that are built more recently and have more amenities ... appear to be faring better in the pandemic," they wrote."Their rents on newly-signed leases do not fall or even go up, in contrast with the rest of the office stock. This is consistent with the notion that firms need to improve office quality to induce workers to return to the office, given new remote options.

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