The Flight to Quality: Choosing Class A Spaces

Organizations are carefully evaluating how much space they truly need—and where they are willing to invest in higher-quality environments to attract employees and enhance productivity. This article explores why organizations are still choosing Class A spaces despite higher costs, as well as how tenants are managing expenses through downsizing, flexible leases, and market negotiations.

1. Why Organizations Choose Class A Offices Despite Higher Costs 

Many companies are gravitating to high-quality Class A (or “prime”) office buildings as a strategic choice to entice employees back on-site and support productivity. Flight-to-quality has accelerated post-pandemic: firms seeking to recruit and retain top talent are willing to pay a premium for modern, amenity-rich workplaces that make in-person work more enjoyable and effective.  

These top-tier offices offer features like superior design, green certifications, concierge services, fitness centers, outdoor space, and advanced tech infrastructure – all of which enhance the employee experience. Corporate leaders increasingly view quality space as a tool to bolster culture and collaboration in hybrid work era. In fact, the highest-quality “prime” office properties (a subset of Class A) are outperforming the rest of the market, with significantly lower vacancies and higher rents, underscoring tenants’ strong preference for new or upgraded buildings.  

By contrast, outdated Class B/C buildings with few amenities are struggling to attract tenants. As a Brookfield industry analysis noted, “90% of all U.S. office vacancies are contained in the bottom 30% of buildings,” while the top quartile of offices enjoy record-high rents and stable occupancy. This gap illustrates why many tenants, despite higher costs, choose quality: a well-located, amenity-packed office can help drive attendance, collaboration, and employee satisfaction, which companies deem worth the investment. High-profile tenants (e.g. financial and law firms) have explicitly prioritized workspace quality over rent savings to gain an edge in talent attraction, favoring trophy offices with great views and transit access over cheaper space.  

In short, workplace strategy now often emphasizes “flight to quality” – smaller but better offices that align with evolving employee expectations – even if it means paying more per square foot. 

2. Tenant Cost-Cutting Strategies: Reducing Footprints and Negotiating Leases 

Even as they seek quality, companies are also aggressively cutting costs and space needs in response to remote/hybrid work and economic pressures. 5 key tenant strategies include: 

1. Smaller Office Footprints 

With fewer people in-office each day, firms require less space. A majority of corporate real estate leaders (67%) plan to reduce their office footprints into 2024-2025. Many businesses have already downsized or consolidated locations, and industry data shows new leases are nearly 20% smaller than pre-pandemic on average. After years of shrinking space utilization, it’s now common for tenants to give back floors or not renew excess square footage. This “rightsizing” saves on rent and operating costs immediately. 

2. Workplace Densification & Remote Work 

Companies are rethinking layouts to use space more efficiently (hoteling, shared desks) and relying on hybrid schedules so that fewer employees are in the office at one time. Surveys show 63% of employees now spend only 1–3 days per week in the office, enabling employers to operate with a smaller physical footprint. Some large occupiers have even moved to mostly-remote setups, retaining just a minimal hub office. 

3. Lease Negotiation & Incentives 

In today’s soft office market, tenants have leverage to secure favorable lease terms. Landlords are offering deep concessions to attract or retain tenants, such as 6–12 months of free rent on long-term deals and hefty tenant improvement allowances (often $120–$160 per sq. ft. for build-out costs). Companies are using these incentives to reduce effective rent. Many tenants are also opting for shorter lease commitments or early renewal deals to maintain flexibility and bargain for better rates. In markets with rising vacancy, a tenant renewing or expanding can often negotiate rent reductions or additional perks given the oversupply of space. 

4. Subleasing Excess Space 

To cut costs on underused offices, firms frequently sublease their surplus space to other tenants. This helps offset rent obligations on space they no longer need. Sublease availability spiked to record highs in recent years as companies like Meta, Salesforce, and others listed large blocks of space for sublease instead of paying for empty desks. (For example, the U.S. office market had over 96 million sq. ft. of sublease space available in mid-2024, more than double pre-COVID levels.) By shedding square footage via sublease, tenants can mitigate lease expenses without outright defaulting on leases.  

5. Less Space, But Higher Quality

Notably, some tenants are combining strategies – trading quantity for quality. They reduce total square footage (and thus cost) and reallocate those savings to upgrade into a Class A building. JLL market reports indicate Class A landlords are seizing this opportunity: well-capitalized owners are offering deals that allow tenants to move up to a better building at roughly neutral cost by taking a slightly smaller suite. This clever approach lets companies achieve a higher-quality workplace and cost efficiency simultaneously. In practice, a tenant might downsize from 50,000 to 35,000 sq. ft. of space but move into a premier location with modern amenities – keeping their overall spend similar or even lower. By “right-sizing” their footprint and upgrading, tenants can balance employee experience with fiscal prudence. 

3. Class A vs. B/C Office Leasing and Rent Trends 

Market data shows a widening divide between top-tier office properties and lower-tier ones in terms of demand, rents, and occupancy. 

Occupancy/Vacancy 

Higher-quality buildings are maintaining much stronger occupancy. In Q1 2024, the average vacancy in “prime” office buildings was 14.8% – a full 4.5 percentage points lower than the rest of the market. Class B and C offices, especially older unrenovated stock, account for a disproportionate share of empty space.  

A recent analysis by Brookfield found “90% of all U.S. office vacancies are contained in the bottom 30% of buildings” (generally Class B/C properties). In contrast, the study found the top-tier segment is faring far better; many trophy downtown towers and newer buildings have stable or even improving occupancy as tenants concentrate in quality space. From 2020 to 2024, U.S. prime offices cumulatively saw +48 million sq. ft. of positive net absorption (net space leased), while the remainder of the office market lost 170 million sq. ft. on net over the same period – a dramatic divergence. 

Rent Levels 

Landlords of premier buildings continue to command hefty rent premiums. Prime offices now achieve rents averaging 84% higher than the market average for other buildings. This rent gap has widened (up from ~60% pre-pandemic) as flight-to-quality demand drives up pricing for the best spaces. In many cities, Class A rents have held firm or risen slightly, even as Class B/C rents decline due to high vacancy. For example, in New York City Class A space often asks $70–$75 per sq. ft., while Class B/C buildings lease for closer to $40–$50 – and some aging offices languish even at $35 per sq. ft. 

Tenants are clearly willing to pay a premium for upgraded properties, forcing lesser buildings to drop rents to compete. In some markets, average rents are declining simply because the only space left to lease is in lower-quality buildings (many top buildings are full or taken off-market). Meanwhile, a few high-end assets have even raised rents due to solid demand. 

Market Bifurcation 

Well-located, amenity-rich Class A assets are weathering the storm – enjoying relatively healthy leasing – whereas commodity offices struggle with vacancy and obsolescence. Landlords of weaker buildings face intense pressure to invest in upgrades or consider repurposing (e.g. converting to residential) to attract any tenants. The consensus is that this bifurcation will persist or widen: as leases expire, tenants generally upgrade to better space or reduce their footprint (or both), leaving behind older buildings. New construction has virtually halted in many cities (given high vacancy), so companies hungry for quality space are absorbing the best existing options first. 

In turn, mid-tier and Class B/C owners are forced to cut rents and increase concessions, or risk prolonged vacancy. This dynamic is evident in major markets: brokers report flight-to-quality trends in New York, Chicago, Los Angeles, and others, with Class A leasing far outpacing Class B/C. Even in tech-heavy San Francisco – where overall office demand is weak – the rent gap between top-tier and lower-tier buildings is historically high, indicating high relative demand for the few desirable offices that can lure workers to commute in. 

For organizations navigating today’s evolving workplace needs, the key is finding the right balance—investing in quality where it matters most while optimizing costs for long-term efficiency.