The numbers tell a story, but it’s a conversation with a veteran of the trenches that gives them meaning. I sat down recently with Christian Ulbrich, the global CEO of JLL, a firm that has its hands on the pulse of nearly every major office market in the world. Over the course of our discussion, a nuanced picture of the post-pandemic office sector emerged—one that defies simple narratives of doom and entirely contradicts the idea of a universal decline. The data, as Ulbrich laid out with the calm authority of someone who has navigated multiple cycles, points to a market not in freefall, but in the throes of a dramatic and permanent recalibration. The headline? Office leasing is peaking, but it’s a peak with a profound asterisk. Quality has become the only metric that matters.
For years, the commercial real estate conversation has been dominated by a single, ominous figure: the vacancy rate. In many cities, it remains stubbornly high, a legacy of hybrid work models and economic uncertainty. But as Ulbrich emphasized, that macro number is increasingly deceptive. “The market is bifurcating at a speed we have never seen before,” he told me. The pain is concentrated almost entirely in older, functionally obsolete buildings—what the industry calls Class B and C space. These properties, often lacking modern air filtration, ample natural light, and robust technological infrastructure, are struggling to find tenants at any price. Their vacancy rates are soaring, pulling the overall average up and fueling the perception of a sector-wide crisis.
Meanwhile, a quiet revolution is happening at the top of the market. Trophy assets, sustainable buildings with premium amenities and prime locations, are experiencing something entirely different. Leasing activity for this top-tier space, Ulbrich noted, is not just stable; in many global hubs, it is accelerating. “Tenants are using this moment as a strategic opportunity,” he explained. Companies are consolidating multiple outdated leases into smaller, but far superior, footprints in brand-new or recently renovated Class A buildings. They aren’t just leasing space; they are leasing a tool for talent attraction and retention. The modern office is no longer a cost center to be minimized, but a strategic asset to be optimized. This flight to quality is the single most powerful trend reshaping skylines from New York to Singapore.
This shift has profound implications for investment and valuation. The gap in value between prime and secondary assets is widening into a chasm. Data from firms like MSCI Real Assets shows capitalization rates for prime offices compressing (indicating rising values) while those for secondary properties expand sharply. This isn’t a temporary discount; it’s a fundamental repricing. Lenders and investors, as Ulbrich observed, are now underwriting buildings with a harsh, new clarity. “The financial model for a twenty-year-old building without a major capital investment plan is becoming untenable,” he said. The capital is flowing decisively toward assets that meet the new environmental, social, and governance (ESG) benchmarks demanded by both corporations and investors, leaving a growing swath of the existing inventory financially stranded.
So, what does this mean for the future? The office is not dead. That simplistic obituary, popular in 2020, has been firmly retracted. Instead, the sector is undergoing a severe and necessary contraction. The total square footage of office space demanded in many markets may permanently shrink. But the value extracted from that smaller, better footprint is poised to grow. The winning buildings will be those that function as seamless extensions of the hybrid work week—vibrant, collaborative hubs that justify the commute. The losers are already apparent. The conversation, as Ulbrich’s insights make clear, has moved beyond vacancy rates. It’s now about relevance. In the new world of work, a building must earn its place, every single day.
- Quality of office space is paramount
- Class B and C properties face high vacancy rates
- Trophy assets are accelerating in leasing activity
- Companies are consolidating outdated leases
- Investment is favoring assets meeting ESG benchmarks
- The office sector is undergoing a necessary contraction
| Aspect | Class A | Class B and C |
|---|---|---|
| Leasing Activity | Accelerating | Stagnant |
| Vacancy Rates | Low | High |
| Modern Amenities | Available | Limited |
| Sustainability | High | Low |
| Investment Attractiveness | High | Low |
| Future Outlook | Positive | Negative |
