Vacancy Gap Widens Between Prime and Non-Prime Assets

🚨The U.S. CRE market is witnessing an increasing bifurcation between prime and non-prime assets. Q2 2025 office vacancy rates show prime buildings at 14.5% versus 19.3% for non-prime. This 4.8 percentage-point gap has grown post-pandemic as demand concentrates on higher-quality assets, enhancing their financing attractiveness while secondary assets face liquidity challenges.

• Prime Office Vacancy: 14.5%, Q2 2025.

• Non-Prime Office Vacancy: 19.3%, Q2 2025.

• Prime Submarket Vacancy (Midtown Manhattan): 6.8%, Q2 2025.

Loan Performance: Prime assets show strong DSCR with stable NOI, while secondary offices with elevated vacancies face heightened risk on debt service coverage.

Demand Dynamics: Prime assets in high-traffic locations maintain low vacancy through strong tenant demand, whereas secondary locations languish with high vacancies and low absorption rates.

Asset Strategies: Non-prime assets require significant CapEx for upgrades, while prime assets capitalize on low vacancy with higher rents and reduced downtime.

Capital Markets: Lenders offer favorable terms for prime assets, such as lower spreads and higher LTVs, while secondary assets see constrained financing options, impacting potential transactions.

• Quality polarization drives financing and leasing gaps.

• Prime assets benefit from demand and valuation premiums.

• Secondary assets need capital infusion for competitiveness.

• Spreads on high-grade loans are compressing, whereas secondary spreads widen.

🛠 Operator’s Lens

• Refi: Prime assets enjoy flexible refinancing. Secondary assets face tightened terms unless value-add improvements are made.

• Value-Add: Non-prime assets need CapEx linked to tenant preferences and lease terms to remain competitive.

• Development: Pro forma must consider tenant relocations toward high-grade locations.

• Lender POV: Prime asset loans receive favorable terms, while secondary asset underwriting tightens, reflecting risk.

• Prime office rents to stabilize or rise; secondary rents could drop.

• Watch for conversion success in secondary office and retail sectors.

• Policy changes in major markets might offer new incentives for underperforming assets.

CRERenews — Seattle Office Portfolio Seized (October 2025). KBRA — Occupancy Trends Report (September 2025). WolfStreet — CMBS Delinquency Analysis (August 2025). TheRealDeal — Seattle Office Vacancy Details (October 2025).