Office demand continues steady path of recovery

Though the first quarter tends to see a minor deceleration in leasing activity, office demand continues to steadily grow, increasing for the fourth consecutive quarter by roughly 6% and growing nearly 30% since Q1 2023. Tenant requirements have now reached their highest level nationally since Q1 2022 and have returned to within 28% of pre-pandemic levels.

Improvement in tenants in the market has been widespread over the past year: from Q4 to Q1, more than 70% of markets contributing to the TIMs index saw QoQ improvement, and more than 90% have seen YoY improvement.

Preliminary lease volume in Q1 indicates relatively stable volume compared to Q4, when leasing activity jumped by over 14%, a sign that large-scale occupiers that had been absent from the market for much of 2023 are continuing to return to the market.

While tenants in the market and leasing volume are concurrently trending upwards, the U.S. will remain in a negative net absorption environment for much of 2024 as current leasing activity heavily favors downsizing existing portfolios – however, footprints are beginning to stabilize and expiration volumes are normalizing, pointing towards more stability in net absorption and vacancy rates towards the end of the year.