Office Market Overview Report: Part Two

SKIP AHEAD TO

• National Gateway Market Rent Index Shows Rebound From 2021 Trough and Growth Over Past Two Quarters
• Average Lease Terms for Prime Class A Buildings Are Rebounding, Nearing Levels Seen in 2019
• Average Transaction Sizes Declined Over Past Two Years for Class B/C and Non-Prime Class A Space
• Prime Class A Effective Rents Have Plateaued Since End of 2022
• Gateway Office Market Concessions up From 2019 but Declined Slightly From 2022

CompStak delved into market statistics for major gateway markets, with a supplementary exploration of New York City’s market. The report examines CompStak trends regarding effective rents, lease terms, concessions, and more. Additionally, CompStak focused on assessing leasing trends across three categories: Prime Class A buildings, the broader Class A market, and B/C buildings.

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National Gateway Market Rent Index Shows Rebound From 2021 Trough and Growth Over Past Two Quarters

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.

CompStak’s gateway market rent index shows a 27% increase from the third quarter of 2008 and has surpassed its previous pre-pandemic peak in 2019 since the fourth quarter of 2021. The index steadily declined from the end of 2019 through the first quarter of 2021 before rising again. 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.

Average Lease Terms for Prime Class A Buildings Are Rebounding, Nearing Levels Seen in 2019

Average lease terms continue to be a statistic to watch, especially after averages dipped solidly during much of 2020 and 2021 as unease about future office needs impacted decision-makers. However, average lease terms for Prime Class A buildings have shown steady recovery to pre-pandemic levels, though they dipped most during the pandemic trough. The average lease term for Prime Class A buildings averaged 132.4 months across 2023’s four quarters, down just 1% from 2019’s comparable average. Meanwhile, average lease terms for other Class A buildings decreased by 5.5%, and for Class B and C properties in gateway markets, the decline was 8.9% from 2019’s average.

Average Transaction Sizes Declined Over Past Two Years for Class B/C and Non-Prime Class A Space

Many are looking to average transaction sizes to understand how much tenants are changing their space needs in the wake of COVID-19 and increased rates of remote work. Average transaction sizes also demonstrate where activity is more robust. According to CompStak’s data, the average transaction size for Prime Class A transactions has ticked up from 2021’s pandemic trough but declined year over year, though 2023’s average is on par with 2018’s level. Concurrently, the average lease size has declined each of the past two years for the rest of Class A buildings and for Class B/C buildings across gateway markets.

Prime Class A Effective Rents Have Plateaued Since End of 2022

Average effective rents, accounting for concessions, have risen fastest since pre-pandemic levels for Prime Class A buildings while the spread between rents for Prime product and the rest of Class A and B and C buildings has continued to widen across gateway office markets. Despite this change, effective rents for Prime Class A space were relatively flat during 2023 after rising steadily from the first quarter of 2021 through the third quarter of 2022. Class B/C effective rents have trended differently, increasing slightly over the past two quarters due to a wave of considerably sized leases signed for government and life-science tenants across these markets in Class B buildings. However, the spread between effective rents in Prime and non-Prime Class A buildings remains the most notable. While averaging around 28% in 2019, this gap widened to a 48% average in 2023.

Gateway Office Market Concessions up From 2019 but Declined Slightly From 2022

Get more insights into U.S. gateway office markets and download the full report!