While overall asking rents are still on the rise, Class B started the year off continuing to outperform Class A
- The last two years are bucking the historical trend for Class A demand, indicating why average asking rents are flattening out for Class A since demand has come mostly from the Class B segment. Due to two large move outs in the Downtown and Rancho Bernardo submarkets, the overall office market was flat in Q1 with negative 16,817 square feet. This is the first negative net absorption quarter since Q3 2015 after the market posted nine consecutive quarters of positive net absorption.
- A common theme the market has seen since 2016 is tenants being pushed out of Class A office space and finding cheaper alternatives by moving into renovated Class B buildings with asking rents on average 29 percent cheaper. Since 2016, Class B has seen a total of 1.8 million square feet positive absorption, approximately six times higher than the amount of Class A. The market is forecasted to have both Class A and B demand to be even by the end of 2018 with several large Class A moves ins and two large build-to-suits totaling 675,000 square feet compared to 350,000 square feet scheduled move ins for Class B.
Senior Research Analyst
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