Occupancy Costs

The average gross asking rent has remained relatively stable in the past quarter and over the course of the year, as did the average net asking rent and the additional rent (taxes and operating expenses). Since the average net asking rent only applies to spaces listed as available, they can present gaps with the average in-place rents, or contractual rents. The average asking rent can however provide a good baseline for comparing occupancy costs from one market sector to another and according to building class.

Based on average gross asking rents, occupancy costs are the highest in Downtown class-A buildings, standing at around $45.00 psf, compared to $30.00 psf for class-B buildings. In suburban markets, the difference between gross asking rent averages for class-A and class-B buildings is not very significant. The same can be said about differences between Downtown class-B gross asking rents and averages for good quality class A and B suburban buildings.

In the current market, a building’s class is no longer the ultimate measure of attractivity. While the prestige and attractiveness of an office building is still tied to the quality of its architecture and design, there are now many more criteria that come into play such as environmental footprint and other factors relating to employees’ wellness like air quality, an inclusive layout, and access to a mix of commuting options. Office space design and access to amenities have also become a powerful lever for attraction and retention of employees. More than ever, cost-benefits site-location analyses are taking into account the labor shortage factor. The cost per square foot is no longer the end-all, be-all it once was.

Behind every transaction, complex negotiations are underway regarding free rents, amenities and other leasing incentives. These are particularly generous in the context of decreasing demand whereby the market favors tenants.