The U.S. office market improved in the fourth quarter, with firms beginning to witness positive absorption for the first time in years, according to data from CBRE, JLL, Cushman & Wakefield and Colliers.
The overall vacancy rate fell by 10 basis points to 18.9% as net absorption outpaced construction completions for a second straight quarter, according to CBRE’s Q4 report. The estimate tracks a 17.6% rate cited by Colliers and a 20.9% rate provided by Cushman & Wakefield.
Demand has nearly returned to pre-pandemic levels, with office leasing volumes establishing new post-pandemic highs for three consecutive quarters and Q4 leasing volume reflecting over 92% of typical pre-pandemic averages, JLL says in its Q4 report.
Leasing activity totaling 62 million square feet in the fourth quarter represented a 24% quarter-over-quarter increase and 23% year-over-year increase, per CBRE’s report. Renewals by large occupiers remained historically high and leases between 10,000 and 20,000 square feet accounted for most of the activity, the firm says.
CBRE cited continued strong demand for high-quality space in prime locations, compared to limited tenant interest for commodity buildings. The firm notes the prime office vacancy rate fell 10 basis points quarter over quarter to 15.3%, while the non-prime vacancy rate stayed flat at 19.2%.
“While we believe renewals are still going to be strong in office leasing, we also believe that there's going to be this shift towards portfolio stability and even expansion,” Jessica Morin, director of office research in the U.S. for CBRE, said during the firm’s 2025 U.S. real estate outlook webinar on Jan. 15. “But the commodity office space and office-centric locations are going to continue to really struggle to retain and also attract and compete for tenants from a much smaller pool.”
Cushman & Wakefield echoed that sentiment, stating that quality continues to be a differentiator.
“Tenant demand has been heavily weighted toward top-tier office space,” the company says. However, the firm noted that occupiers are finding fewer options in new buildings and are looking at the next quality down the quality spectrum as the construction pipeline. “Accordingly, the last quarter of 2024 was the most stable for non-trophy Class A demand since the onset of the pandemic,” Cushman & Wakefield says.
Whether the demand for prime office space will trickle down through all classes remains uncertain, according to Colliers, which noted that while rents at the top of the market have held steady or increased, rents in lower property classes have declined throughout the country.
Rents fell almost 40% in the fourth quarter and concession packages remain at an all-time high nationwide despite the stability of asking rents, Colliers says. This continues to place downward pressure on effective rents, the firm says in its report.
However, the absence of newly delivered space is “beginning to be felt by tenants in many markets,” with available supply in newer buildings declining 25% since peaking in 2022 at over 100 million square feet nationwide, JLL says. This slowdown in deliveries and new groundbreakings, alongside an acceleration in leasing activity, is driving a “spillover effect” where broader segments of the market are beginning to stabilize and experience growth that was previously confined to the high-end segment of the market, per JLL’s report.
“Spillover demand is benefitting similar pockets of the market across multiple geographies, with tenants targeting buildings in top-tier locations, or buildings where upgrades have brought building quality nearly in line with newer construction,” JLL says.
Sublease trends prompt hope for larger market
Subleasing availability also has declined across the country, showing steady improvement over the course of 2024, according to JLL. New additions on the market declined in each quarter of 2024, cumulatively falling 26% year over year in the fourth quarter, with four of the last five quarters seeing less sublease additions than the monthly average since 2020, per JLL’s report.
This moderating of sublease additions correlates with a broader decline in downsizing activity taking place over the past nine months, which continued to play out in Q4. Rates of downsizing have fallen more than 50% from peak levels and are improving rapidly, JLL says, noting that in 2024, tenants over 25,000 square feet who acted upon a lease expiration cut their footprints by 7.9% on average, “the most substantial YoY improvement in this metric since the pandemic began.”
Colliers noted that a shrinking sublease market is historically a leading indicator of a peak in overall vacancy and a market tightening. “This is often driven by increased optimism among occupiers, prompting them to either pull space off the sublease market or take on others’ subleased space themselves,” the firm says.
