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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.

More than 22% of Gateway U.S. Office Leases Expiring by Mid-Year 2026

Over the next two years, more than twenty percent of office leases will expire, with the peak year for their original execution being 2019 (13.7%) and another 16.8% executed since 2020.  Another 42.1% of today’s current office leases will expire from Q3 2026 through 2030 across major U.S. gateway markets. 

Across the 11 major office markets tracked in this report, there are some sizeable leases from tenants who have not yet renewed set to expire in the second half of 2024 through the first half of 2026. Among the largest include a 618,000-square-foot lease from the city of New York in Downtown Manhattan and several leases from technology tenants including a 458,000-square-foot lease from AT&T in Washington, D.C. and Google’s 403,815-square-foot office along San Francisco’s waterfront. 

U.S. Gateway Markets, Office Lease Expirations

National Gateway Market Rent Index Stabilized in 2023, but Declined in 2024, Falling Below Pre-Pandemic Peak

Across U.S. gateway markets, average starting rents for closed transactions have generally shown growth since the pre-pandemic period, which can reflect the quality of spaces that are leasing rather than true overall market strength or momentum. CompStak’s market rent index was constructed to better illustrate the changes in starting rents over time and compare it to a base period in the third quarter of 2008, in the depths of the Great Financial Crisis.

According to the latest data available, CompStak’s gateway market rent index illustrated declines in 2024 from 2023 and its post-pandemic peak in the third quarter of 2022. Despite a 22% increase from Q3 2008, CompStak’s Gateway Market Rent Index has notably fallen below its pre-pandemic peak from 2019 during 2024, after staying above it since Q4 2021. During the pandemic trough at the beginning of 2021, the starting rent index value was 16% above 2008 levels, but in the third quarter of 2019, the index was more than 23% above the base period in 2008.

U.S. Gateway Office Markets, Starting Rent Index

Average Lease Term Length for Prime Class A Buildings Surpasses 2018-2019 Average for Third Consecutive Quarter

Mid-year 2024 marked two significant milestones in terms of the length of office lease commitments. Notably the average term length for Prime Class A leases continued to surpass the 2018-2019 pre-COVID average, but the average lease length for the rest of the Class A market surpassed that period’s average for the first time in the post-COVID period, averaging 103.5 months in the second quarter of 2024 across the gateway market average. Key leases that boosted the Prime and Other Class A average included American Eagle’s 20-year direct lease to relocate to New York’s 63 Madison Avenue, Orrick’s lease at San Franciscos’ 405 Howard Street securing the law firm for another 12-plus years, and Piedmont Plastics’ committment for more than 14 years in Midtown Atlanta. 

Meanwhile, office lease length in Class B/C properties followed a different trajectory. After a steady recovery from the COVID-driven low in Q1 2021 through Q3 2022, lease term length began to decline again and has largely plateaued since early 2023. As of Q2 2024, the average lease term is down 6% compared to the 2018-2019 baseline.

Gateway Markets, Average Lease Term

Average Lease Term for Renewing/Extending Tenants Exceeds 2018-2019 Average for First Time since Q1 2020

For the first time since early 2020, after four consecutive quarters of increasing term lengths, the average term for renewing and extending tenants in gateway markets exceeded the 2018-2019 average, reaching 94.1 months—about 27 months shorter than the average for new leases and expansions. Law firms that contributed to the major deals boosting the Q2 2024 average included Covington & Burling, which completed a 13-year direct extension in New York’s Hudson Yards, and Orrick, with a lease at 405 Howard Street. Additionally, several long-term government leases ranked high in terms of duration. Among them are a 15-year renewal from the FBI in Patriots Plaza in Washington D.C. and an 11-year renewal from the Federal Housing Finance Agency. 

While the average time of lease commitment from tenants completing new or expansion deals has yet to pass the 2018-2019 average, it has remained within reach of it for the past three quarters, averaging about 122 months, which is just two months shy of the pre-COVID 2018-2019 average. 

Effective Rent Average Jumped in Q2 2024 for Prime Class A Office, as Share of Leases in Triple Digit Rents Reached New Peak

The average effective rent for Prime Class A office transactions closed in Q2 2024 pushed the average to a new post-COVID high, in a potentially notable shift after three straight quarters of a largely stable average. This trend is influenced by the steady increase of the share of all deals closing at triple-digit effective rents—in 2019, the average share of all deals in triple-digits was 3.1% across gateway markets but is now up to 5.2% as of 2024 to date. Lease transactions in Prime Class A buildings—including new construction, trophy properties, and recently renovated buildings—have seen the most significant growth since their COVID-19 low, outpacing other market segments. Prime Class A effective lease rates have increased by 43.4% from Q4 2020.  Leases that elevated this quarter’s average to new heights included several deals at 1 Vanderbilt in New York City, one of the nation’s top buildings for in-place rents, as well as major West Coast transactions like Tinder’s renewal in the Bay Area and Andreessen’s relocation within the Menlo Park submarket.

While the rents for Prime Class A continue to hit new marks, this quarter also demonstrated upward movement for the rest of Class A and B/C transactions where rents grew for three consecutive quarters, and are now up 20.1% and 18.6% growth for the rest of Class A and Class B/C leases, respectively, since their previous low in Q1 2021. 

U.S. Gateway Markets, Average Effective Rents

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