Demand for High-Quality Space Drives Office Market Gains

Executive Summary

• The U.S. office market improved in Q4, with the overall vacancy rate falling by 10 basis points (bps) to 18.9% as net absorption outpaced construction completions for a second consecutive quarter.
• Demand for high-quality space in prime locations remained strong, while commodity buildings continued to draw limited tenant interest. The prime office vacancy rate fell by 10 bps quarter-over-quarter to 15.3%, while the non-prime vacancy rate stayed at 19.2%.
• Leasing activity totaling 62 million sq. ft. in Q4 was up by 24% quarter-over-quarter and 23% year-over-year. Renewals remained historically high and were primarily by larger occupiers. Leases of between 10,000 and 20,000 sq. ft. accounted for most of the activity.
• Net absorption totaling 10.3 million sq. ft. was the highest quarterly total in three years.
• Available sublease space fell to 3.9% of total office inventory in Q4, down by 50 bps year-over-year.
• Space under construction fell to 24 million sq. ft. at year-end, less than half of what it was a year earlier.
• Average asking rent ticked up by 23 cents year-over-year to $36.31 per sq. ft., while average taking rent rose by 15 cents to $32.29.