Direct availabilities of newly built office diminishing

As the office construction pipeline falls significantly from peak levels, the supply of direct space less than 10 years old is declining, even as an increasing share of office demand is being captured by that segment of asset quality.

Amid flight to quality, offices constructed in the past decade have grown to capture 14.1% of gross leasing after averaging 11.5% throughout the past cycle—if those trends continue, overall U.S. office leasing would only have to return to 77% of pre-pandemic levels for new construction to see a full rebound in demand.

U.S. office leasing volume in Q4 fell by 10.8% quarter-over-quarter to 40.7 million s.f. as companies put space requirements on hold amid macroeconomic volatility, but leasing volumes continue to trend upward year-over-year and 2022 totals amounted to 72% of pre-pandemic levels. As leasing momentum improves, tenants seeking high-quality space will have face increasing scarcity of available options.