2024 Mid-Year Office Market Report: Part Three

CompStak conducted a detailed analysis of office leasing trends for Q2 2024, uncovering significant shifts in lease terms, concession ratios, and effective rents across major U.S. markets. Using CompStak’s extensive data, we’ve identified a notable increase in lease terms driven by law firms and government tenants, as well as rising rents in Prime Class A office spaces. Our upcoming blog series will break down these key findings, offering a closer look at the evolving office real estate landscape.

Interested in exploring the full report? Find it here.

Gateway Market Concession Ratios Remain Elevated Above Pre-COVID Averages but Have Steadied Over the Last Two Quarters

In 2024, office landlords continue to allocate a larger portion of total lease value (total rent over the lease term) to concessions, such as free rent periods and tenant improvement allowances, compared to the pre-COVID average of 2018-2019. As of Q2 2024, the average ratio of concessions to total deal value in gateway markets is 12.9%. This ratio has remained steady for two consecutive quarters but is still 130 basis points higher than the 2018-2019 average. This indicates that while it remains a tenants’ market, the steady increase in concessions since 2020 may be reaching its ceiling across the broad market.

Gateway Markets, Average Overall Concession Ratio

Class B and C Concession Ratios Decline in Q2 2024, Dropping Below Pre-COVID Levels After Four Stable Quarters

Despite a slowdown in the overall average concession ratio’s year-over-year growth, there are notable differences among leases completed in buildings of various classes and qualities. Much of this stabilization can be attributed to Class B and C buildings, which have seen concession ratios decline year-over-year for the past seven quarters. At 9.8% in Q2 2024, this ratio now sits just below the pre-COVID average, contrasting with the upward trends seen in Prime and other Class A buildings over the same period.

Meanwhile, concession ratios still increased from last quarter and last year for leases in Class A buildings outside of Prime product, leading to the widest spread between concession ratios of Class A vs. B/C buildings since the onset of the pandemic and exceeding levels in 2018 and 2019. 

Gateway Markets, Average Concession Ratios, Prime Class A vs. Other Class A vs. Class B/C

Prime Class A vs. Other Class A vs. Class B/C

Landlord Boston Properties and Law Firms Dominate the Top Five Deals by Consideration Across 8 Select Major Markets in 2024

Tenants in the Legal Services sector were prevalent among the most valuable office deals in 2024, followed by those in the TAMI and FIRE sectors. Tenants in these sectors included the law firm Covington & Burling, Bloomberg, and Andreessen Horowitz, all of which signed the most valuable leases among tenants in those respective sectors. Notably, none of the top deals in the Dallas market involved FIRE tenants, while Chicago was the only major market where a Life Science tenant appeared among the top five deals ranked by consideration. Law firms signed the majority of these top 5 most valuable deals in 2024 across these markets, including four of five of the top deals in San Francisco. However, the most valuable transaction overall involved the media company Bloomberg, which committed to a total of $705.4 million over an 11-year term. 
Landlords involved in these top transactions by value included Allianz, Wells Fargo, The Related Companies, KKR, Alexander’s, DivcoWest, and the Kaiser Family Foundation, among others. Notably, BXP, Inc. leased three of the top deals across three different markets, while The Irvine Company was the landlord for the two highest-value deals in Chicago.

Most Valuable Deals in Select Gateway Markets

New Leases and Expansions Average Longer Terms Than Renewals in Top 5 Deals by Total Consideration Across Major Markets

Among the top five deals across these markets, the average lease term for new leases and expansions is 227.8 months, outpacing that of renewals and extensions, which averages 171.6 months.

Most Valuable Deals in Select Gateway Markets