Defaults and vacancies are on the rise at high-end office buildings, in the latest sign that remote work and rising interest rates are spreading pain to more corners of the commercial real-estate market, the Wall Street Journal reported. For much of the pandemic, buildings in central locations that feature modern amenities fared better than their less-pricey peers. Some even were able to increase rents while older, cheaper buildings saw surging vacancy rates and plummeting values. Now, these so-called class-A properties, whose rents generally fall into a city’s top quartile, are increasingly coming under pressure. The amount of U.S. class-A office space in central business districts that is leased fell in the fourth quarter of last year for the first time since 2021, according to Moody’s Analytics. The owners of a number of high-end properties recently defaulted on their mortgages, highlighting the financial strain from rising interest rates and vacancies. “Any property owner that says ‘Oh we’re fine’ is a little bit fooling themselves,” said Thomas LaSalvia, director of economic research at Moody’s Analytics. Some office landlords invested heavily in their buildings in recent years, adding spas, gyms, restaurants and modern elevators. The hope was that by modernizing their properties, these owners could benefit from a flight to quality as more tenants seek out environmentally friendly buildings with plenty of amenities and natural light.
