Office Is Recovering and Repricing at the Same Time

➤ The Signal

• The top of the market is tightening; prime vacancy is falling nearly 8x faster than overall vacancy.

• The bottom is still resetting basis at steep discounts to last-cycle pricing.

The single number that matters is the gap between prime vacancy (12.7%) and overall vacancy (18.6%). Nearly six points separate the buildings tenants want from the buildings they don’t. That spread is the market, not the blended average.

Recovery and distress are not sequential phases — they are happening in the same quarter, in different buildings. Prime space leases and reprices upward; commodity space trades hands at a basis that only works after a deep write-down.

The Boston trade shows the mechanism. A new owner buys at 31 cents on the 2015 dollar, then funds a leasing and capital program from that basis. The building isn’t dead; it was mispriced for the prior cost of capital.

➤ Implications

Underwrite office by tier, not by market average. Prime assets are a rent-growth story; commodity assets are a basis-reset story that only pencils for buyers who acquire below replacement cost and control capital for repositioning. The blended vacancy headline hides both.