The latest U.S. office market metrics for Q2 2024 may appear bleak at first glance, with high vacancy rates, negative absorption, and slow rent growth continuing from the previous year due to the COVID-19 pandemic. According to Colliers’ Office Market Statistics report for Q2 2024, this trend is expected to persist as construction starts have halted and concession packages are at an all-time high.
However, there is some positive news amidst these challenges. Analysts in their reports have noted a rise in overall absorption rates and a decrease in construction activity as companies adjust to hybrid work arrangements. JLL’s U.S. Office Market Dynamics report for Q2 also mentions that return-to-office rates are stabilizing as employers solidify attendance policies.
This stabilization of hybrid work has led the sector towards a new equilibrium according to JLL analysts who also observed changes in leasing strategies by both tenants and landlords seeking lower costs of capital associated with higher interest rates.
Furthermore,Cushman & Wakefield’s National Office Marketbeat report highlights that this stabilization has provided a baseline for space requirements which will lead occupancy levels to stabilize by late 2025 when headcount growth and new business formation create demand again.
While most markets still experienced negative absorption during Q2 2024,Lee & Associates’ Market Report notes an improvement comparedto last year while Cushman & Wakefield points out that one-third of office markets saw positive absorption during this period.The market is no longer divided into two categories but three – top-performing properties with low vacancy rates,middle-market properties facing opportunitiesand challenges,and obsolete ones requiring investment or conversion.
Another factor contributing positively towards absorption numbersis reduced construction activityacross all commercial real estate product typesdue tonumerous factors suchas inflation,fundamentals,andhigh costof capital.Just like Lee&Associates,JLLalsoobserveda significant declineinnewconstructionstarts overthe pastyear.Cushman&Wakefield analysts predict that while deliveries may decrease in the near future,there is still strong demand for new high-quality spaces.However,the lower number of new constructions will allow existing buildings to stabilize occupancy levels with less competition.
In summary,while the U.S. office market continues to face challenges from the pandemic and its aftermath, there are signs of improvement as companies adjust to hybrid work arrangements and construction activity decreases.This could lead to a more balanced market in the coming years.
