For the data behind the commentary, download the full Q4 2024 U.S. Office Report.
U.S. Office Absorption Was Negative in Q4, but Demand Is Firming Up
The fourth quarter of 2024 marked the 12th quarter in a row—and 18th out of the past 19—with negative net absorption in the U.S. office sector. However, the quarter recorded -5.8 msf of net absorption, making it the most stable quarter for office demand in over two years. By comparison, the prior three quarters averaged a deeper decline of -17.0 msf. Notably, 44 out of the 93 markets tracked by Cushman & Wakefield Research reported positive net absorption this quarter. Leading the way were San Jose (+774,000 sf), Nashville (+680,000 sf), Brooklyn (+380,000 sf), Columbus, OH (+345,000 sf), Tulsa (+337,000 sf) and Midtown South Manhattan (+333,000 sf).
Full-year absorption was positive in 29 markets, with five markets each absorbing over 500,000 sf of space: San Jose, Nashville, Tampa, Baltimore and Tulsa. The national total for the year finished at -57.0 msf, slightly stronger than forecasted in the Cushman & Wakefield baseline scenario outlook.
Higher-quality offices continue to be more resilient and are likely to recover more quickly. Nationwide, Class A absorption was essentially flat in the fourth quarter (-61,000 sf). Class A net absorption improved QOQ in two-thirds of U.S. markets and was positive in half. Demand for Class A offices was strongest in the South, which recorded nearly 2.0 msf of positive absorption in Q4, led by Nashville, Charlotte, Austin, Atlanta and Tampa.
Sublease Availabilities Decline for Third Quarter in a Row
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. It is promising to see national sublease availabilities decline again in the fourth quarter. Currently, there is 142.2 msf of available sublease space, which is down 2.6% QOQ and is 3.8% below the most recent peak of 147.9 msf in Q1 2024.
Sublease availabilities have declined QOQ and YOY in over half of U.S. markets. On an absolute basis, the largest declines have been in and around two gateway markets—New York and San Francisco—boding well for upcoming demand recoveries in the largest U.S. cities. The amount of available sublease space declined by over 200,000 sf in San Jose, San Mateo County, San Francisco, Midtown Manhattan, Midtown South Manhattan, Northern New Jersey and Salt Lake City.
Supply Side Challenges Are Abating as Construction Pipeline Dwindles
A total of 32.6 msf of new office space delivered in 2024, largely unchanged from 2023, but well below the pandemic-era average of 43.6 msf. Construction activity has slowed considerably, driven by market uncertainty, higher interest rates and construction cost challenges. By the end of 2024, the construction pipeline had shrunk to 29.3 msf, which is half the size it was just a year ago. After a 16% QOQ decline, the total amount of U.S. office space under construction is below 30 msf for the first time since 2011. This pipeline now represents 0.7% of total inventory, down 50 bps from a year ago and less than half the pre-pandemic average of 1.5% (2010-2019). The continued construction slowdown will soften supply-side pressure and will insulate existing higher-quality assets in the coming years.
For the data behind the commentary, download the full Q4 2024 U.S. Office Report.
