Don't Call It A Comeback: U.S. Office Leasing Expands Beyond New York

Ladies and gentlemen, buckle up! The U.S. office market is back in action, and it's not just New York leading the charge. We're seeing a massive expansion in leasing activity across the country, and it's time to pay attention. The numbers are in, and they're screaming one thing: THIS IS THE TIME TO INVEST IN OFFICE SPACE!



Let's dive into the data. In Q1 2024, U.S. office leasing activity reached 52.2 million square feet. That's a 36.1% drop from the pre-COVID average, but it's a 32.1% increase from Q1 2023. The market is stabilizing, and the signs are clear: office leasing is on the rise. The slowdown in large block leasing is a symptom of large occupiers' hesitancy to commit to long-term occupancy strategies, but that's about to change. Return-to-work policies are finalizing, and occupiers are getting a better understanding of their space needs. This is going to boost leasing activity in the second half of the year, and you don't want to miss out!

Now, let's talk about the trends driving this expansion. Trophy properties are outperforming other asset classes in terms of average lease term lengths. As of Q1 2024, the average lease term for trophy properties is 110 months, which is 27.1% longer than the overall average of 87 months. This is a flight-to-quality trend, and it's a no-brainer. Tenants are willing to sign longer lease terms in high-quality properties due to large concession offerings. This trend is expected to continue in the coming quarters, further stabilizing the market.

Another key trend is the normalization of downsizing activity. Tenants are becoming more comfortable with their existing office footprints, leading to a steady normalization of downsizing. This is evident in the data showing that leasing activity continued to grow after establishing a post-pandemic high last quarter. The return-to-work policies are starting to finalize, providing occupiers with a better understanding of their space needs, which should boost leasing activity in the second half of the year.



The market is seeing a record volume of inventory being removed for conversion and redevelopment. This, combined with the slowdown of new supply, is leading to a tightening office market nationally for the first time since 2019. The direct available office space in the U.S. reached a decades-long high of 1 billion square feet in early 2024, but the sublet available space reached its lowest value since Q4 2022. This inversion of trends can be linked to an increase in occupiers’ need for flexibility, drawing them towards signing subleases.

The economic landscape has shifted significantly in the past three months due to the Federal Reserve’s interest rate cut in September, a relatively stable labor market, and strong corporate earnings. This has led to an increase in transaction volume, which is likely to continue as valuations recover and capital costs decline. Gateway and secondary office markets are outperforming the national leasing rate, with growth markets in the Sun Belt also continuing to outperform national totals. This is attributed to corporate relocations and expansions out of gateway markets in favor of lower-cost Sun Belt secondary markets.

So, what's the bottom line? The U.S. office market is expanding beyond New York, and it's time to take notice. The trends are clear: trophy properties are outperforming, downsizing is normalizing, and the market is tightening. The economic landscape is improving, and transaction volume is increasing. This is the time to invest in office space, and you don't want to miss out on this opportunity. So, get in the game, and let's make some money!