🚨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).
