Terms like “flight to quality” and “bifurcation” have been part of the office discussion since the pandemic. The belief is that tenants prefer newer, amenity-filled Class A buildings to older, Class B or C buildings.
Chase Garbarino’s reaction? Not so fast. Garbarino, CEO of the real estate data company HqO, shared his thoughts on office usage and tenant relationships with Connect CRE.
Q: What are your thoughts about the continuous focus on office bifurcation?
A. The market narrative has been a flight to Class A quality, and there is truth in that. But age and class designation matter less than how a building is operated. In Dallas, trophy Class A buildings are running at 12.7% vacancy while lower-tier Class A assets in the same market sit above 28%.
The buildings losing ground at every class level share one failure. They are still measuring tenant relationships with lagging indicators. Occupancy rate. Lease expiry. NOI. None of those tells you a tenant is at risk until it is already too late to do anything about it.
What our data consistently shows is that the assets retaining tenants are those where the landlord actually knows the tenant, how frequently tenants use the building, whether engagement is trending up or down, and how employees feel about the space month over month.
Q: What are some examples of how operations attract tenants?
A. Part of this involves how tenants actually use the building on any given day, and how building operations respond to that.
For example, on high-traffic days, the best-run buildings activate expanded food and beverage offerings, priority booking for shared spaces, and programming that brings tenants into contact with one another. On lighter days, building owners and landlords might pivot to productivity support, maintenance windows and smaller community events.
The programming piece is where most landlords still underinvest, and the data backs this up. In-person socializing at the office has nearly doubled since the pandemic, and the most engaged employees consistently prioritize learning and social connection over working alone.
The buildings with the highest utilization rates are the ones treating the tenant community as an asset to curate: speaker series, wellness programming, cross-company networking, and shared experiences that employees cannot replicate at home. In short, the lease gets them in the door. The experience is what makes them want to stay.
Q: Are you seeing a change in the office lease mode?
A. Yes, but the process is uneven. Leesman data shows that nearly half of senior corporate real estate leaders identify flexibility of space and lease terms as the single biggest gap between what the market is offering and what they actually need.
More than half of corporate real estate executives say that tenants are actively seeking shorter lease terms for new or renewed space. The average new lease size has fallen 32% compared with pre-pandemic levels.
Landlords are responding, but many are responding to the symptom rather than the cause. They might add a managed suite here, a short-term option there.
What the best operators understand is that flexible lease terms are an expression of a deeper shift: tenants want a relationship, not a contract. Tishman Speyer, Boston Properties, and others are moving in this direction with their own flexible product offerings, and that is the right instinct.
Offering a shorter lease in a building that still operates transactionally is not a solution. The landlords who will benefit are those who have built the operational infrastructure to serve tenants across a range of commitment levels and convert that engagement into long-term retention, even if the lease itself is short.
Q: What are some reasons for the increase in office demand that HqO is seeing?
A. RTO mandates get the headlines, but they are not the whole story.
The buildings closing the utilization gap fastest are the ones that have made the office experience genuinely better than the alternative. Hybrid work is now permanent for roughly 80% of occupiers according to CBRE, and average occupancy is still 25% to 40% below pre-pandemic levels. The buildings recovering fastest have earned that recovery through experience, not mandates.
Three years ago, most landlords were flying blind: they knew whether a tenant could pay but didn’t know whether they planned to stay. Today, the best operators track Tenant Health, a composite of utilization, engagement and sentiment that functions as a leading indicator of retention risk.
One Culver in Los Angeles is a concrete example. This 325,000-square-foot campus has increased occupancy despite a 28% market vacancy rate in its submarket. It has since undergone a $500 million recapitalization, valuing the asset at more than triple its acquisition price.
Q: What recommendations would you offer to tenants and landlords based on your data?
A. For landlords, start measuring tenant relationships with the same rigor you apply to physical assets.
Most track tenant credit, which tells you whether a tenant can pay. What they are not tracking is Tenant Health, which indicates retention. That distinction is expensive to ignore. The signals that predict churn are visible months before a tenant makes a renewal decision. You have to measure them to see them.
For tenants, the buildings worth committing to are the ones where the landlord has built infrastructure to support your business over time, rather than just handing you the keys and waiting for you to renew. Ask prospective landlords not just for a tour of the space, but for evidence of how the building performs after move-in. The landlords who can answer that question with data are the ones worth partnering with.
Q. Where do you see the office sector heading?
A. The broader direction the sector is heading is toward what I would call a membership model for commercial real estate. The most sophisticated landlords are already moving there, thinking about tenants not as counterparties to a lease but as members of a platform. These landlords build the experience infrastructure to sustain a relationship with tenants across renewals, expansions and market cycles.
That shift changes everything: how you underwrite a building, how you measure success, how you allocate capital. The landlords who make that transition early will find themselves with a structural advantage when the next cycle turns.
The post What Drives Office Use and Occupancies? Hint: It’s Not About Class appeared first on Connect CRE.
