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Q4 Office: Absorption Inches Upward Amid Space Demand and Less Product
The office sector’s post-COVID struggles could be finally easing. Fourth quarter reports about the U.S. office market indicated that net absorption had been at its highest in a while, with “positive trends in leasing activity and rental rates, despite ongoing challenges in new supply and capital markets,” according to JLL’s U.S. Office Market Dynamics.
Furthermore, “the lack of new construction and additional buildings removed for conversion to another use resulted in a drop in vacancy,” added Colliers’ U.S. Office Market Statistics Report. Lee & Associates North American Market Reports added to that, suggesting that close to one-quarter of under-construction projects are “being built for owner-occupiers.”
In addition to less new construction in the pipeline and coming online, Lee & Associates analysts explained that the sector “is approaching an inflection point, with apparent assistance from employers revising permissive pandemic workplace rules.” JLL and Cushman & Wakefield’s United States Office MarketBeat agreed with this assessment, adding that a decline in available sublease space is also a positive factor.
Additionally, “certain industries, such as technology, finance and legal firms, have stabilized and are beginning to expand their office footprints, contributing to higher leasing volumes,” JLL analysts added.
While most tenants are still looking for newer, amenitized buildings, “with the construction pipeline shrinking, occupiers are finding fewer options in new buildings and are looking at the next level down the quality spectrum,” Cushman & Wakefield said.
JLL analysts are forecasting an optimistic outlook for 2025. Leasing volume is anticipated to grow, “driven by continued demand from large users and a positive trend in tenant requirements,” the analysts added.
Meanwhile, the Cushman & Wakefield researchers predicted office vacancy will peak by mid-2025 because of stronger fundamentals and a smaller construction pipeline. New product should continue performing well as “obsolete product may require investment or conversion, and downtowns and central business districts may need to reimagine their optimal real estate mix,” the Cushman & Wakefield analysts added.
- ◦Lease
- ◦Development
- ◦Economy
