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Research - NOVEMBER 12, 2014

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Class B office sees rent growth in some CBDs

by Reg Clodfelter

With limited space and heavy competition for class A office space among tenants in major central business districts, class B office rents have seen massive growth in crowded CBDs, including year-over-year growth of 29.5 percent in mid-market San Francisco, according to new data from JLL.

Furthermore, while investor competition has pushed prices for class A CBD office to all-time highs and cap rates to historic lows, the same is not true for class B office assets, whose average cap rate nationwide is 138 basis points higher than their class A counterparts at 6.91 percent as of June 30, 2014, according to CBRE.

But rent growth in class B offices has not been impressive everywhere, and the nationwide average for year-over-year rent growth is only 1.3 percent, according to JLL. It has been specifically supply-constrained CBDs, especially markets saturated with start-up companies in need of discounted space, where class B rent growth has been well over 10 times the

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