The 4Q24 Newmark United States Office Leasing House View report provides a detailed analysis of the current office market landscape, highlighting employment, leasing, and investment trends. As office markets navigate evolving work patterns and economic conditions, understanding key market shifts is essential for investors, landlords, and tenants.

Key Trends Shaping the Office Market

Employment and Demand

• Office-using employment is growing but at a slower pace than the overall labor market. The tech sector, in particular, continues to underperform, impacting demand.
• Hybrid work remains a factor, with 49% of pre-pandemic leases yet to be renewed. Despite this, 80% of tenants do not plan to reduce their office footprints upon lease renewal.
• Major markets show job growth, with 19 out of the top 50 markets seeing increased office employment over the last six months.

Leasing and Occupancy

• After 18 consecutive quarters of net losses, office occupancy rebounded by +5.3 million SF in 4Q24.
• 37 out of 60 tracked markets reported quarter-over-quarter improvements in net absorption.
• The construction pipeline has contracted to 33.7 million SF—down over 21.8 million SF from 2023, tightening supply.

Regional Performance

• The East and West regions led occupancy gains, with New York (+1.8 MSF), Washington, D.C. (+1.6 MSF), and Silicon Valley (+796,787 SF) showing the strongest increases.
• The South and Central regions experienced a net loss of 1.1 MSF, despite accounting for 40% of under-construction inventory.

Rent and Concessions

• Asking rents increased by 0.8% YoY, with higher gains in major markets (+2.4%) and Central U.S. (+1.9%).
• Tenant improvement (TI) allowances are now 66.7% higher than pre-pandemic levels, impacting effective rental rates.
• Class B suburban properties have outperformed Class A CBD properties, suggesting a shift in demand preferences.

Future Outlook

• The market is experiencing a slow but steady recovery, with leasing activity improving across premium properties.
• Cap rate adjustments are ongoing, and investors should closely monitor opportunities in distress and value-driven acquisitions.
• Office footprints are stabilizing, signaling that hybrid work adjustments may have peaked.

What This Means for CRE Investors and Tenants

• Landlords should focus on quality: The market favors high-end, well-located buildings, particularly in gateway cities.
• Investors should prepare for strategic acquisitions: With distressed assets emerging, opportunities exist for long-term plays.
• Tenants can leverage incentives: Strong TI packages and concessions create negotiation advantages in lease renewals.

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