The U.S. office leasing market is showing signs of recovery, with a slight increase in lease signings during the first half of 2024 compared to pre-pandemic averages. However, the way occupiers are approaching these leases has fundamentally changed. While renewals are on the rise, the average space being leased has decreased, reflecting new workplace realities and economic conditions.
A Shift in Leasing Behavior
CBRE’s analysis of H1 2024 office leasing trends reveals notable patterns:
- Renewals Dominate: Renewals accounted for 42% of office lease transactions, up from 31% pre-pandemic.
- Smaller Spaces: Average lease sizes for renewals dropped by 21%, while new lease sizes decreased by 32%.
- Prime Space Demand: Premium buildings, comprising just 8% of total U.S. office inventory, have captured 12% of leasing volume since 2021.
This trend suggests that while occupiers are more inclined to stay put, they are also downsizing and prioritizing higher-quality spaces when they do relocate.
Why Renewals Are on the Rise
Economic uncertainty and hybrid work adoption have led many businesses to take a cautious approach. Large occupiers, in particular, are leveraging their relationships with landlords to negotiate favorable terms during renewals. CBRE’s 2024 Americas Occupier Sentiment Survey found that 92% of companies with over 10,000 employees are considering or executing lease renewals, compared to just 47% of smaller companies.
Renewals offer stability, particularly for landlords looking to avoid large vacancies. They also allow businesses to adapt to changing work models without committing to new locations.
Prime Buildings Hold the Spotlight
For occupiers seeking new leases, premium office spaces—those with modern amenities, sustainability certifications, and central locations—are the top choice.
- Prime office buildings have seen longer lease terms, averaging 107 months compared to 86 months for non-prime spaces.
- Gateway markets like Philadelphia, San Francisco, and Dallas-Ft. Worth have seen prime buildings account for up to 26% of total leasing activity since 2021.
Demand for prime space is largely driven by the legal, technology, and finance sectors, which prioritize high-quality environments to attract talent and clients.
What’s Next for the Office Leasing Market?
Looking ahead, leasing activity is expected to gain momentum through late 2024 and into 2025. Businesses are gaining confidence in making real estate decisions, fueled by a resilient economy and the prospect of lower interest rates.
The demand for premium office space reflects a broader shift in occupier preferences: quality over quantity. Companies are downsizing but investing in environments that support collaboration, innovation, and employee well-being.
Conclusion
While the U.S. office leasing market has yet to return to pre-pandemic norms, the shift toward smaller, higher-quality spaces signals a new era in commercial real estate. For landlords and investors, adapting to these changing demands will be critical to capturing long-term value in a rapidly evolving market.
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