Overall office market vacancy levels will remain elevated in 2024 in most markets as corporate space occupiers continue to downsize their footprints as lease terms expire. Large cities such as New York, San Francisco, Chicago, Los Angeles, Seattle, and London experienced significant negative absorption in 2023, increasing office vacancy rates.
There are some exceptions where strong leasing demand was caused by corporate relocations from other geographic areas which led to positive leasing absorption in 2023. Raleigh, Miami, Houston, Tampa, and Salt Lake City all benefitted from relocations, and these cities will likely continue to benefit from this in the coming years.
The hybrid work environment remains a strong trend as occupiers allow employees flexibility to work from home on certain days each week. Many occupiers are increasing their collaborative workspace areas within their space and decreasing the amount of private office space as a component to their hybrid working plans.
Look for increased data tracking pertaining to occupancy levels within each office space. This data will be critical for larger corporate users as it can provide valuable insights to support office sharing and the hybrid work initiatives and improve upon them.
We expect to see office landlords tempt occupiers with strong lease concession packages, including tenant improvement allowances and free rent. The best opportunities for tenants to capitalize on the market conditions will be in downtown office buildings due to their high levels of vacant space. Suburban office buildings have less vacant space than their downtown counterparts, but overall it remains a tenant’s market with good leasing conditions available for tenants.
In some markets, large corporate suburban campuses are available for purchase. These are being considered by office occupier companies but are also being pursued by residential and industrial developers.
As some office landlords are in financial distress, it is very important for office occupiers to protect their lease interests to ensure they receive all the concessions promised in a new lease or lease renewal, such as a tenant improvement allowance or free rent.
If you are a tenant leasing office space this is your opportunity to take advantage of the market conditions. Find an expert tenant representative in your market here. All ITRA Global members exclusively represent tenants and provide principal-level expertise based on transparency, integrity, and trust. With members worldwide, ITRA Global is uniquely positioned to meet all your real estate advisory needs.
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Article submitted by Wayne Teig / ITRA Global Minneapolis-St. Paul, Minnesota USA
