2024 Mid-Year Office Market Overview Report: Part One

October 1, 2024

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 U.S. Office Markets

U.S. office-using employment hit a new post-2000 peak in June 2024, 6.1% above pre-pandemic levels. While growth has slowed, major job losses from recession fears have not materialized, with unemployment still low at 4.1% at mid-year. However, concerns remain that rising unemployment could further weaken office demand.
The U.S. annual average of full paid days worked from home has declined for four consecutive years, reaching 27.7% in 2024 to date, though it remains well above the pre-pandemic level of 7.2%. While hybrid work remains prevalent, there has been a gradual increase in the number of days worked from the office.
After stabilizing in 2023, CompStak’s National Gateway Market Rent Index declined in 2024, falling below its pre-pandemic peak for the first time since late 2021. Despite a 22% increase from its 2008 baseline, starting rents in gateway markets have decreased from their post-pandemic high in 2022.
In Q2 2024, the average lease term for renewing and extending tenants surpassed the 2018-2019 average for the first time since early 2020, reaching 94.1 months. This increase was driven by law firms and government tenants, while the average lease length for new leases and expansions remains just below pre-pandemic levels at 122 months.
As of Q2 2024, concession ratios in gateway markets remain elevated at 12.9%, 130 basis points above the 2018-2019 average. Although the average concession ratio has stabilized over the past two quarters, it continues to reflect a sustained tenants’ market in the post-COVID era.
In Q2 2024, average office effective rents for Prime Class A buildings hit a post-COVID high, with triple-digit deals rising to 5.2% of deals, up from 3.1% in 2019. Prime Class A rents have increased by 43.4% from their post-COVID low in late 2020, while other Class A and Class B/C rents have grown by more than 20% since an early 2021 trough.

U.S. Office Using Employment Growth Moderated But Reached A New Peak since 2000 In 2024

As of June 2024, “office using” employment is 6.1% higher compared to its pre-pandemic level in February 2020 and registered a new high post-2000. While U.S. office-using employment recovered to pre-pandemic levels at a much faster rate compared to the Great Financial Crisis recovery, the rate of growth has moderated in 2023 and 2024.

Although many expected accelerating job losses amid recession concerns in 2024, those concerns have yet to manifest as employment levels remain solidly above 2020 levels across the U.S. overall. To date, there has not been a substantial downturn and the U.S. unemployment rate stands at 4.1% as of mid-year, still near a cyclical low. Still, increased job losses would be expected to be another drag on new office demand.

National Office-Using Employment

U.S. Central Business District Office Vacancy Continued to Rise Faster and Lead the Suburban National Average as of Q2 2024

The NCREIF Property Index (NPI), an index of institutional-grade assets, reveals a shift in the relationship between suburban, CBD, and national office vacancies since the third quarter of 2021. In Q3 2021, the suburban office vacancy rate was higher than that of CBD offices. However, since then, the CBD office vacancy rate has grown faster, and the gap between them continues to widen. As of Q2 2024, the suburban office vacancy rate is 310 basis points lower than the CBD average and 160 basis points below the U.S. office average. Moreover, U.S. overall office vacancy rates have been steadily rising for 18 consecutive quarters.

United States Office, NCREIF Property Index, Vacancy Rates

U.S. Annual Average of Paid Full Days Worked from Home Has Declined for the Past Four Consecutive Years to 27.7% as of Mid-Year 2024

According to insights from WFH Research and the Survey of Working Arrangements and Attitudes, the number of paid full days working from home remains up substantially from the estimated pre-COVID level of 7.2%, but the annual average has declined for the past four consecutive years to 27.7% in mid-year 2024, indicating that while hybrid work is still robust, there continues to be a small uptick in days worked from office over time. In the latest June 2024 survey, 28.6% of paid full days were worked from home, which up slightly from June 2023’s average days worked from home tracked in this data set.