–The bifurcation between premium and commodity space continues to grow more prominent. This becomes increasingly evident when examining the lease economics behind San Francisco’s different asset classes.
–Trophy assets continue to hold strong because of a high demand for premium space, mostly fueled by superior amenities, modern buildouts, and favorable locations. The small spread between base rents and net effective rents points to strong leasing fundamentals and reflect the lower vacancy levels for trophy buildings.
–On the other hand, commodity space has pushed the market to record levels of vacancy. A significant portion of the non-Trophy spaces that have leased have required substantial TIs to get the deal over the line, which is reflected by lower rents and higher spreads.