Office “Flight-to-Quality” Gap Tracker

3 Star Industrial

Introduction

The post-pandemic office market is increasingly defined by a “flight-to-quality” trend, where tenants favor premium Class A office buildings over older Class B/C properties. This has created a widening gap in performance between top-tier offices and lower-tier assets. Key metrics like rents, occupancy rates, and leasing activity now diverge sharply by building class. In this comprehensive report, we track the Class A vs. Class B spread across the United States – with a spotlight on New York City, San Francisco, and Los Angeles – using the latest 2023–2024 data. We’ll examine rent premiums, occupancy differentials, sublease availability, and lease renewal vs. new deal trends that illustrate how Class A offices are outperforming, and analyze whether this flight-to-quality momentum is accelerating or stabilizing. Commercial real estate professionals, investors, and analysts can use this “gap tracker” to understand the implications for their portfolios and strategies in today’s bifurcated office market.

Understanding the Flight-to-Quality Trend

The flight-to-quality refers to tenants “seeking top-tier properties with desirable amenities and easy transit access” in lieu of lower-quality space. In practice, this means many companies are consolidating or relocating into modern Class A buildings (often new or recently upgraded) to help entice employees back to the office, even as they shed excess space. Meanwhile, second-tier Class B/C buildings – typically older, less amenitized offices – face rising vacancies and falling rents as they lose favor. This trend has been especially pronounced since COVID-19 upended office usage patterns. However, it’s not uniform across all cities or assets; local market dynamics can affect the degree of quality flight. Below, we break down the key components of the Class A vs. Class B gap and how they’ve evolved through 2023–2024.

Rent Premiums: Class A vs. Class B Office Rents

One of the clearest indicators of flight-to-quality is the rent premium commanded by Class A offices over Class B. Across major markets, asking rents for Class A space have surged well above Class B levels. According to a 2024 BDO analysis, New York City’s Class A vs B/C rent gap hit ~31% by Q4 2023 – a historically high premium that had steadily grown since the start of COVID-19. (It dipped only slightly in early 2024, suggesting a possible plateau at this elevated spread.) Chicago showed a similar bifurcation with a ~29.7% rent gap between top-tier and lower-tier offices. Even tech-heavy San Francisco, despite record vacancies, saw its Class A to B rent spread peak at 24.8% in Q1 2022 and remain about 22% as of Q1 2024 – notably higher than pre-pandemic norms. Los Angeles has a smaller divide: the LA market’s Class A/B rent difference fluctuated during the pandemic, peaking around 19.4% in 2020 and settling at ~17.4% in early 2024 (one of the lowest gaps in years).

Table 1 – Class A vs. Class B Rent Gaps in Major Markets (2023–24)

Market	Class A Rent Premium (vs Class B/C)	Notes (Asking Rent Levels)
New York City	~31% higher than Class B/C	Midtown Class A: ~$70–$75/ft² vs Class B/C: $45–$50. Trophy offices in Downtown NYC achieve ~$75, while nearby older buildings languish at ~$35.
Chicago	~29.7% higher	Similar gap to NYC; slight increase post-2020. Premium driven by established tenants (finance, law) flocking to trophy space.
San Francisco	~22% higher	Gap peaked at ~25% in 2022, then narrowed slightly as overall rents fell. Tech downturn hit all classes, but prime buildings held value better.
Los Angeles	~17% higher	Relatively modest spread; property-specific flight-to-quality in prime submarkets (e.g. West LA).

Sources: Loan Analytic Database.

These figures underline how top-tier offices are commanding a sizable rent premium. In dollar terms, brokers report Class A space in Manhattan averaging about $70–$75 per square foot annually, versus $45–$50 for Class B/C offices. In one stark example, a newly built trophy tower in Downtown NYC leases for $75/ft², while a nearby decades-old building struggles at $35/ft². Similar rent bifurcations are seen in other cities: in Midtown South Manhattan, Class B rents can run $20–$25/ft² cheaper than Class A rents, making them attractive to cost-conscious tenants. National research by CBRE further confirms this divergence – base rents for Class A/A+ offices rose ~3% in 2023–24, even as Class B/C rents fell ~5–6%. In short, landlords of premium offices have largely held firm or even increased rents, while lower-tier landlords are cutting prices to entice tenants. This rent spread reflects flight-to-quality in action: many tenants are willing to pay a premium for new, amenity-rich space, especially when it helps in talent attraction and productivity. At the same time, weaker buildings face rent stagnation or decline – some Class B/C owners have maintained nominal asking rents but offset with heavy concessions, effectively lowering net effective rents.

Looking ahead, rent trends suggest the flight-to-quality gap may persist or even widen in some markets. CBRE notes top-tier offices enjoyed positive rent growth through 2024, partly due to reduced free rent and tenant improvement giveaways (landlords no longer needing extreme incentives), whereas Class B/C effective rents eroded under the weight of high vacancies and concession packages. Unless demand unexpectedly rebounds broadly, Class B rents will likely remain under pressure, cementing a large rent premium for quality assets.

Occupancy and Vacancy Differentials

Beyond pricing, the occupancy gap between Class A and Class B offices has become glaring. Higher-quality buildings are enjoying markedly better occupancy rates, while older buildings see “cataclysmic” vacancy levels. At the national level, Class A office vacancy was about 7.9% at end of 2023, versus 14.5% for Class B and a whopping 23.4% for Class C. In other words, lower-tier offices have nearly double (or triple) the vacancy rate of prime offices. This trend speaks to companies “turning their backs on secondary space” in favor of best-in-class properties. Even as overall U.S. office vacancy hit a ~13.6% record high in 2023, the pain was unevenly distributed: half of that empty space is concentrated in older, less-competitive buildings, while many top-tier towers remain highly occupied.

Major markets illustrate this bifurcation. In Manhattan, for example, Class A towers remained relatively full in 2024–25, while lesser buildings struggled. By late 2024, Manhattan’s overall office vacancy averaged ~23%, but Class A vacancy was around 15% – implying Class B/C vacancy rates in the 30% range. (In fact, some newer trophy buildings in NYC boast near-zero availability, effectively 100% leased, whereas certain aging offices suffer vacancies well above 30%.) San Francisco tells a similar story: downtown SF’s vacancy soared above 33% by early 2025, yet the elite “Trophy” Class A segment shows only ~15% vacancy. Top-tier SF assets dramatically outperform the broader market, which is mired in high vacancy due to tech sector downsizing and remote work. This reveals how flight-to-quality concentrates demand in a subset of buildings even within a weak market – as of Q1 2025, half of downtown SF’s empty space was effectively in non-trophy buildings, while luxury towers attracted tenants with improved terms. Los Angeles has a more nuanced case: West LA’s premier buildings enjoy solid occupancy (thanks to entertainment and media tenants doubling down on quality space), but older offices in secondary LA submarkets see much higher vacancy. Overall, the pattern is clear: in many cities, vacancies are tightening in top-tier offices and concentrating in “competitively obsolete” properties.

From an occupancy perspective, the flight-to-quality trend means landlords of Class B/C buildings face an uphill battle. Many are losing tenants to Class A properties and struggling to backfill space. Landlords with deep pockets have tried to retrofit or reposition their B/C assets with better amenities to remain viable. However, those unable to invest enough are left with high availabilities and dwindling tenant interest. As Cushman & Wakefield researchers observed, the U.S. market is becoming “trifurcated”: a top tier of buildings with high occupancy, a middle tier of decent but not new Class A buildings starting to absorb some overflow demand, and a bottom tier of outmoded buildings that could stay largely empty. In fact, by late 2024, roughly half of U.S. office buildings were fully occupied while much of the vacancy was concentrated in the other half – underscoring a sharp dichotomy. Tenants plainly “have the upper hand” in lease negotiations for lower-quality buildings with high availabilities, forcing those landlords to either cut rents, increase incentives, or consider alternative uses.

Sublease Availability and Market Supply

Another key aspect of the quality gap is where excess space is coming from. Since 2020, companies have returned millions of square feet to the market – often via sublease listings – as they downsize. This flood of sublease space has disproportionately affected less-desirable offices. By the end of 2023, U.S. sublease availability hit an unprecedented 209 million square feet. Much of this was space vacated by tech and corporate users in secondary buildings or locations. For instance, during the pandemic many tenants tried to shed Class B offices (deemed non-essential or underutilized) while holding onto their highest-quality space. The result: Class B/C buildings saw faster initial increases in vacancy than Class A early in the work-from-home era.

However, recent data suggests a turning point. As of 2024, the sublease glut may be easing – especially in prime markets – partly because the worst of the downsizing has passed and partly because any company looking to “flight to quality” has by now listed their old space or exited it. Cushman & Wakefield reported that available sublease space declined ~14.5% from its peak in Q1 2024. In 55 of 92 U.S. office markets, sublease inventories dropped year-over-year in 2024, indicating some large subleases were either withdrawn (tenants decided to keep the space) or successfully sublet. Notably, tenants have been finding sublessees for high-quality offices more readily, whereas sublease space in aging buildings can languish. For example, in Manhattan, sublease availability fell for eight consecutive quarters through early 2025, reaching its lowest level since mid-2020. Much of that reduction was in Class A subleases getting taken off the market as firms either backfilled them or reoccupied to bring employees back. In contrast, sublease space in less popular buildings still moves slowly.

The overall supply pipeline is another factor. New construction deliveries are overwhelmingly Class A (virtually all new office builds in the past decade are top-grade). This adds to Class A inventory but doesn’t help Class B supply. In fact, new supply can widen the gap: new trophy space attracts tenants from older buildings, effectively cannibalizing Class B/C occupancy and forcing those older assets to compete even harder on price or convert to other uses. The good news for beleaguered landlords is that office construction has now dropped to multi-decade lows – only ~13 million sq. ft. delivered in 2024, about 50% of 2023’s volume. With fewer shiny new buildings opening, the flight-to-quality may stabilize, as tenants begin to “move down the quality spectrum” once top-tier options fill up. We’re already seeing this in New York: as Class A towers filled up, tenants started spilling into well-located Class B+ buildings, fueling a surge in leasing for the “next-best” options. In Q1 2025, Manhattan saw 8 million sq. ft. of Class B space leased – the highest post-pandemic quarterly volume – because many Class A offices were at capacity. Concurrently, supply of B space is shrinking due to conversions: New York has begun incentivizing office-to-residential conversions, which often target older Class B/C properties. Over 6.5 million sq. ft. of Manhattan Class B offices have converted since 2020, with potentially triple that in planning. Each conversion further tightens the supply of usable B space, ironically creating a “supply pinch” that can stabilize occupancy in the remaining Class B buildings.

In summary, sublease and supply trends are a double-edged sword for the flight-to-quality gap. On one hand, the wave of sublease space (much from Class B/C) underscored how tenants shed lower-tier offices first. On the other, as that wave recedes and fewer new offices come online, some Class B buildings are seeing relief via reduced competition and even newfound demand from tenants priced out of Class A. The flight-to-quality remains evident, but the worst may be over in terms of supply imbalances – a crucial factor in whether the gap keeps widening or starts narrowing.

Lease Renewals vs. New Deals: Quality Over Cost

Flight-to-quality is also influencing leasing behavior, notably the split between companies renewing leases versus those relocating to new buildings. Recent data shows a striking trend: major occupiers are increasingly opting to renew existing leases, unless they can justify a move to higher-quality space. In 2023, 58% of the top 100 largest U.S. office leases were renewals, a sharp reversal from 2022 when most big deals were new leases. CBRE attributed this to cost containment in an uncertain environment – many firms chose to downsize or renegotiate in place rather than incur the capital expense of a move. However, when companies did decide to relocate or expand, they overwhelmingly went upmarket. A CBRE analysis found that among those top 100 leases of 2023, 84% of all new lease transactions were in Class A or A+ buildings. That is far above Class A’s 61% share of total U.S. office inventory, indicating a disproportionately high demand for quality in new leasing. In other words, the majority of firms that moved in 2023 “flew to quality,” while those not seeking quality mostly stayed put (renewed).

This has two implications. First, tenants are hesitant to commit to new space unless it offers a clear upgrade – better location, amenities, or image. The flight-to-quality is partly driven by companies using real estate as a tool to entice staff back to the office; a modern, amenity-rich environment can be a draw, whereas shifting to another mediocre office has little benefit. Second, it means older Class B buildings are missing out on new tenants. If most new deal activity is targeting trophy and Class A assets, lower-tier landlords must rely on renewals of existing tenants to avoid vacancy. Unfortunately for them, many tenants in B/C buildings are downsizing or leaving if they can. Thus, we see a vicious cycle: Class B/C leases that expire often result in consolidation or move-outs, whereas Class A expirations are more likely to renew or even expand due to lack of better alternatives.

Anecdotally, renewals have become a dominant theme of the office market. Companies that aren’t prioritizing a flight-to-quality upgrade are often downsizing into less space but in the same building (renewing part of their footprint). This is evident in that 2023’s top leases included a heavy dose of renewals by large tenants (especially in the Mid-Atlantic and Northeast) who chose to “resize” in place to save cost. Meanwhile, sectors that were active in new leasing – e.g. government agencies in 2023 – tended to take space in new or refurbished Class A buildings when available. The flight-to-quality narrative is so prevalent that even these public sector occupiers sought higher-grade space coming out of older facilities.

The data reinforces that when tenants do make moves now, it is usually to better quality. This has cemented a bifurcated leasing market: Class A landlords are capturing a larger share of whatever leasing volume exists (often through tenants relocating from Class B/C), and Class B landlords are left with fewer new prospects and must focus on retaining existing occupants. Some savvy Class B owners have managed to keep buildings full by investing in upgrades and offering aggressive concession packages – effectively mimicking some Class A features (pre-built suites, amenities, flexible terms) to retain tenants. For example, New York landlords have poured capital into older buildings for makeovers, which has helped attract or keep certain tenants despite the flight-to-quality trend. But those concessions come at a cost to owners’ bottom lines and are not sustainable for all. As the balance of negotiating power remains with tenants (especially in commodity Class B space), lease structures have shifted: shorter lease terms, more early termination options, and heavy TI (tenant improvement) allowances are common in Class B deals, whereas top-tier assets can demand longer commitments and still achieve higher effective rents.

Major Market Spotlights: NYC, SF, LA

Flight-to-quality is playing out uniquely across different cities. Here we provide a dashboard of Class A vs Class B spreads and trends in New York City, San Francisco, and Los Angeles – three bellwether markets:

New York City: Record Rent Gaps and Resilient Class A

NYC’s office market is highly bifurcated. As noted, Manhattan’s Class A asking rents average about $75 per sq. ft. (Midtown trophy towers can reach $120) versus roughly $45 per sq. ft. for Class B/C space. This equates to a rent premium exceeding 30%, the highest NYC has seen in modern times. That gap peaked in late 2023 and remains far above historical norms. Occupancy reflects a similar split: top-tier buildings in core submarkets (e.g. Park Avenue, Hudson Yards) enjoy strong leasing and limited available space, while many older Downtown and Midtown South offices struggle to fill large blocks. NYC brokers report Class A vacancy in the mid-teens% versus Class B in the high 20s% to 30% range. Indeed, by early 2025 some Class B is finally seeing a boost – ironically because Class A is so tight. In Q1 2025, Manhattan saw an unprecedented flight to “B-plus”: with Class A towers essentially “full,” tenants turned to quality Class B options (good location, recent renovations) and leased 8 million sq. ft. of Class B space in one quarter. This wave included major commitments like Amazon (via WeWork) taking 300k+ sq. ft., IBM leasing at the upgraded One Madison, and law firm Goodwin Procter taking 250k sq. ft. in a 116-year-old building. Such deals show that “B is the new A” – but only for the best B buildings, and often after significant upgrades. Meanwhile, truly outdated offices in NYC continue to lose tenants or are candidates for conversion. The city has plans to incentivize conversions of older offices to residential, which target primarily Class B/C stock – potentially removing millions of sq. ft. from the office inventory and further tightening the Class B supply.

For landlords, NYC’s trend means those who own premium assets can still push rents and maintain occupancy, whereas owners of vintage buildings face tough choices: invest heavily to reposition, or sell (often at a steep discount). Some Class B landlords with strong balance sheets have renovated lobbies, added amenities, and built turnkey pre-built suites to lure tenants – essentially trying to compete on quality. Tenants in NYC clearly value modern amenities, transit access, and prestige; buildings offering those are winning out. The flight-to-quality in NYC appears persistent, though the BDO analysis suggests it may have peaked in magnitude – the rent gap ticked down slightly in Q1 2024. If new construction remains limited (NYC has very few new office towers in the pipeline), Class A landlords should retain pricing power. For Class B/C, the outlook is more about survival via adaptation or alternative use.

San Francisco: Tech Woes, High Vacancies, and Stabilizing Premiums

San Francisco’s office market has been hit hardest by remote work and tech sector pullbacks. Vacancy citywide ballooned to around 35% – an unheard-of level. In this context, all building classes have struggled to some degree, but Class A still outperforms B/C. The rent gap between Class A and B in SF reached ~25% at its peak in early 2022 and has since edged down to ~22%. This slight narrowing suggests that Class B rents have already fallen so much that the gap can’t grow further, or conversely, that Class A rents have seen some downward pressure too (as even top landlords compete for a limited tenant pool). The key story, however, is occupancy divergence. Trophy Class A buildings in downtown SF have around 15% vacancy, which is far better than the ~34% overall downtown vacancy. In other words, the worst emptiness is concentrated in older, lower-tier buildings (many of which are 40–50% vacant or more). Tenants that are active in SF overwhelmingly seek quality: they prefer buildings like Salesforce Tower, 555 California, or recently renovated landmarks, which now offer rents 30–40% lower than pre-pandemic levels – effectively a “luxury discount” that has made trophy offices affordable to a broader range of firms. This has led to positive momentum in those prime buildings (some big new leases have been signed in late 2024 and 2025 for trophy space, like a 123k sq. ft. lease by Morgan Lewis at the revamped Transamerica Pyramid). Meanwhile, large swaths of 1970s-80s vintage Class B towers in SF remain mostly vacant, and some are even facing distress or foreclosure as values have plummeted.

San Francisco’s flight-to-quality gap seems to be stabilizing, as the BDO insight noted that while the overall market is “grim,” the pricing gap staying wide (~22%) indicates higher-quality offices may retain value better than low-quality. Essentially, Class B/C rents and values have fallen so hard (Class B rents reportedly down ~5.7% in 2023) that Class A’s relative premium is somewhat capped. But that doesn’t signal a recovery for B/C – rather, it means those buildings may be approaching a floor (or headed for repurposing) while tenants that remain in the market gravitate to the best available space. Investors have shown interest in SF’s flight-to-quality story by acquiring trophy assets at a discount and investing in upgrades (e.g. SHVO’s $1 billion renovation of Transamerica Pyramid). Their bet is that premium offices will bounce back first when SF eventually recovers, whereas commodity offices will be left behind. For tenants, the upside of the downturn is that they can now lease top-tier space in San Francisco at rates that were unimaginable a few years ago (e.g. trophy rents that were $100+ per sq. ft. pre-2020 are now $60–$80). Many are taking that opportunity to “trade up” to better environments without increasing costs – a classic flight-to-quality play.

Los Angeles: Selective Flight-to-Quality and Narrowing Rent Gap

The Los Angeles office market exhibits a more nuanced, property-specific flight-to-quality. LA is geographically sprawling and segmented into submarkets. Premium demand has been especially strong on the Westside (e.g. Century City, Santa Monica, Culver City), where entertainment and tech firms seek high-end space to lure employees back on-site. Class A leasing activity in Los Angeles has been robust, totaling over 28 million sq. ft. since 2020, with marquee examples like a talent agency expanding from 300k to 400k sq. ft. in a new Century City trophy tower (delivering 2026). This shows companies willing to commit to new, top-tier buildings in LA given the right location and amenities. On the other hand, some older Class A and B offices in less trendy areas are struggling, and overall, LA’s Class A vs B rent gap (≈17% in early 2024) is smaller than New York or Chicago. In fact, LA’s gap peaked early – around 19% in 2020 – and then narrowed to one of its lowest points by 2024. Why? One reason is that LA’s Class B rents didn’t crash as hard, and Class A rents haven’t skyrocketed, partly due to ample supply in certain submarkets and tenants’ sensitivity to rent. Also, some well-located Class B buildings (especially those that have been renovated into creative office space) continue to attract tenants who might not need a glossy high-rise.

Occupancy trends in LA still favor quality: West LA Class A vacancy is relatively low (sub-15% in some pockets), while older offices in Downtown L.A. or outlying areas see much higher vacancy (Downtown’s overall vacancy is around 30%+, with many Class B skyscrapers largely empty). Brokers note that where flight-to-quality is occurring in LA, it’s mostly intra-market – companies move from, say, an outdated building in Downtown or Hollywood to a newly built project in Culver City. The gap in LA is thus felt more between submarkets (amenity-rich Westside vs. older CBD) than simply class labels. Nonetheless, Los Angeles landlords are keenly aware of the flight-to-quality pressure. Many Class B owners have tried to reposition properties as trendy creative offices (open floor plans, outdoor space, etc.), hoping to capture tenants who don’t want to pay Century City rents but still want a modern vibe. Meanwhile, Class A landlords that lack top-notch amenities are upgrading to stay competitive. The relatively tighter rent gap (compared to NYC/SF) might imply that LA’s flight-to-quality could accelerate if the economy improves – i.e. there may be more runway for Class A rents to grow or Class B to drop. But as of 2024, LA’s situation suggests the flight-to-quality is present but not as extreme as in some other gateway cities, and it can depend on specific property appeal.

For investors and owners in LA, the implication is to focus on submarket selection and asset quality. Trophy assets in the right location are still drawing tenants (and investor interest), whereas generic offices – even Class A in a weak location – face an uncertain future. LA also has seen instances of big value drops in older office buildings, leading to a push for redevelopment or conversion (e.g. some Downtown LA offices are candidates for residential conversion akin to other cities). The 17% rent spread in LA might understate the true gulf in leasing velocity – top properties lease up, lesser ones sit idle. Going forward, if Westside Class A continues to fill and new construction stays limited, we might actually see spillover demand to Class B+ buildings there (similar to Manhattan’s recent trend). But any such benefit will be uneven, rewarding only the “best of the rest.”

Outlook: Implications for Landlords, Tenants, and Investors

The flight-to-quality trend has far-reaching implications for all stakeholders in the office sector:

• Landlords (Owners): Owners of Class A and trophy properties are generally in a stronger position – they can maintain higher rents and face lower vacancy, though they must still invest in amenities and tenant experience to stay on top. For Class B/C landlords, the pressure is intense. Many are compelled to offer large concessions (free rent, TI allowances), reduce base rents, or invest in upgrades just to retain and attract tenants. Those who cannot compete on quality may look to repurpose or sell. We’re already seeing a wave of office conversions (to residential, hotel, etc.) targeting underperforming B/C buildings. Landlords must weigh the cost of upgrades against the reality of higher cap rates and lower values for obsolete offices. In some cases, default and foreclosure loom for buildings that lose too many tenants. On the flip side, Class B owners with capital might find opportunity: as some competitors exit (via conversions), the remaining updated B buildings could capture tenants seeking value rents, as evidenced by Manhattan’s recent Class B leasing uptick. Overall, landlords need to assess their portfolio: trophy assets will likely keep outperforming, while older assets might need radical changes (amenity overhauls or redevelopment) to survive in the new normal of flight-to-quality.

• Tenants (Occupiers): Office occupiers have more leverage in this market – especially in Class B/C leases – but they are also navigating how to use space to achieve business goals. The flight-to-quality implies that tenants are prioritizing employee experience and flexibility over sheer cost. Many large tenants are downsizing their total footprint (due to hybrid work) but “trading up” in building quality with what space they do lease. This can mean moving to a newer building with better wellness features, sustainability credentials, and location advantages to help entice staff back. Tenants who stay in Class B buildings are often able to negotiate favorable terms, like shorter leases or extra outs, since landlords are eager to keep them. However, tenants should also beware of potential downsides in lower-tier buildings – e.g. deferred maintenance, or the landlord’s financial instability (a few high-vacancy office properties have fallen into financial distress, which could impact building services). Protective lease clauses and due diligence on the landlord’s health are advisable when leasing in a struggling building. Meanwhile, companies that can afford it are leveraging the soft market to secure space in Class A buildings at attractive effective rents – essentially locking in quality space for the long term at a discount. This could be a competitive advantage in talent recruitment/retention. In short, tenants have an opportunity in this environment to align their real estate with workplace strategy: consolidate into better spaces that support collaboration and culture, while shedding the rest. The flight-to-quality trend has shown that quality matters for productivity and employee satisfaction, a point underscored by surveys (e.g. Gensler’s Workplace Survey finding strong links between building quality and workplace performance).

• Investors (Capital Markets): For investors, the Class A vs B gap translates into a tale of two markets. Core, well-leased Class A offices in prime locations are holding value much better and continue to attract buyers (though at adjusted pricing) looking for long-term bets on the best assets. In contrast, Class B and especially Class C office valuations have plummeted, with some properties trading at large discounts to prior values or not trading at all due to lack of demand. We see investors targeting flight-to-quality “winners” – for instance, picking up high-quality assets at a discount and banking on their resilience. Some opportunistic investors are also eyeing distressed Class B/C buildings for conversion projects or value-add plays (if they believe an upgrade can reposition an asset to a quasi-Class A status). However, the pool of capital for straight-up B office acquisitions is thin; lenders are also more cautious on lower-tier offices, often requiring more equity or higher rates, reflecting the risk. REITs and institutional owners are pruning portfolios to focus on their best properties – some are selling off older assets (even at losses) to rid themselves of exposure to the weak end of the market. Going forward, if the flight-to-quality trend stabilizes, there may be a pricing floor for decent Class B in good locations (especially if conversions reduce supply). But many Class B/C buildings in oversupplied markets could remain “stranded assets”. Investors will likely differentiate sharply: location, building quality, and leasing profile will drive value more than ever. Cap rates for prime vs. secondary offices have diverged significantly as a result of this bifurcation. In essence, the flight-to-quality is forcing investors to underwrite office deals with a binary lens – assuming either a best-in-class future or preparing for an uphill battle to reinvent the asset.

Conclusion

The Office “Flight-to-Quality” Gap is now a defining characteristic of the U.S. office market. Recent data from 2023–2024 highlights unprecedented spreads between Class A and Class B performance – from record rent premiums and concession disparities to stark vacancy differentials. In top markets like New York, San Francisco, and Los Angeles, we see the same theme play out in different hues: tenants gravitating to modern, amenity-rich offices, leaving aging buildings behind (or demanding heavy discounts to occupy them). This trend has accelerated in the wake of the pandemic, fueled by hybrid work dynamics and employers’ efforts to make the office worth the commute. However, we also observe signs that the gap may be stabilizing in some areas – for instance, as Class A availability tightens and certain Class B buildings find a second life through upgrades or conversions, the most extreme rent or vacancy spreads could moderate.

From an expert perspective, the flight-to-quality is both a challenge and an opportunity. It challenges owners of sub-par assets to adapt or face obsolescence; it offers tenants and investors the chance to reposition into quality at more favorable economics than in the past. We are likely to see a continued revaluation of office inventories: fewer total offices needed overall, but higher demand concentration in the top tier of space. For industry professionals, keeping a pulse on the Class A vs Class B gap – via rent spreads, occupancy rates, and leasing trends – is critical. This “gap tracker” will inform strategic decisions, whether it’s where to invest capital, how to price a lease, or when to repurpose a building. As 2024 unfolds, watch for whether flight-to-quality maintains its momentum or if value-oriented strategies start to nibble at the edges of this gap. So far, the message from the market is clear: quality wins in the fight for tenants, and understanding the spread between the best and the rest will be key to navigating the office sector’s next chapter.

Sources:

• BDO Valuation & Capital Market Analysis (VCMA) Group – Flight to Quality Trend in Commercial Real Estate (May 2024)

• CBRE Research – Top-Tier Office Rents Brief (March 2025) and Top 100 Office Leases of 2023 analysis

• Site Selection Group – Office Challenges Continue into 2024 (Jan 2024)

• Cushman & Wakefield – U.S. Office MarketBeat Q3 2025 (Nov 2025)

• Downtown SF Partnership – Trophy Buildings Shaping SF’s Recovery (Mar 2025)

• Building Salt Lake – Flight-to-Quality New Normal (Mar 2025)(commentary on Class B/C vacancy)