At the beginning of each year, several commercial real estate firms at the national and local levels, as well as major consulting firms, publish their annual reports about commercial office markets. Here are a couple of comments from the current crop of national reports focused on the US office market that apply to the Kansas City office market, too.

• The office sector is increasingly bifurcated.
  • High-quality, amenity-rich, transit-accessible assets with strong sustainability credentials continue to perform relatively well.
  • In contrast, commodity office stock faces significant structural headwinds and may require repositioning, conversion, or, in some cases, obsolescence.

What this finding makes clear is that Class A office buildings with attractive amenities (and in the best submarkets) are leasing well. Companies across the country have spent the past several years reevaluating and solidifying their real estate needs, often leveraging lease expirations or landlord negotiations as a way to upgrade their space.

Many have opted to trade out space in older, less attractive properties for offices in newer and better-located buildings. That flight to quality has boosted occupancy at the top-end of the office quality spectrum, but has decimated demand for many older, lower-tier alternatives.

This finding indicates that companies are upgrading their locations to higher-quality Class A buildings even though it may be associated with a reduction in square footage. The trade-off of space for better quality space means many tenants are upgrading their space without a significant increase in their total occupancy cost.