Why Are Office Rents Rising Despite High Vacancies?

[Sanjeev Advani]

The office rental market is experiencing a puzzling trend: office vacancy rates are soaring, but rents continue to rise. Typically, higher vacancies lead to lower rents, but today’s reality is different.

Inflation plays a role — while the consumer price index has surged over 20% since 2019, office rents have not kept pace in real terms. However, landlords are investing heavily in upgrading office spaces to meet modern tenant demands, such as flexible work setups and health-conscious designs. These costly improvements are pushing rents up.

While effective rents (factoring in concessions) may be declining, asking rents remain high as landlords aim to maintain their property value. Tenants are still willing to pay more for high-quality spaces, creating a delicate balancing act in the market. This trend of rising rents is expected to continue for the foreseeable future.