The US office market marked a turning point since the onset of the COVID-19 pandemic, with the fourth quarter of 2024 witnessing the first positive net absorption since Q4 2021, signaling a resurgence in office space demand. This milestone cited by JLL in a new report, comes as companies increasingly implement regular office attendance requirements, leading to a notable decrease in downsizing rates.
Leasing activity in Q4 2024 reached 52.9 million square feet, establishing a post-pandemic record for the third consecutive quarter. This volume represents a 4.9% increase quarter-over-quarter and a substantial 17.6% growth year-over-year, bringing leasing activity to over 92% of pre-pandemic averages.
The recovery appears to be spreading more evenly across different geographic regions, with Sun Belt markets leading the charge at over 95% of pre-pandemic activity in the last six months. Gateway markets have also shown significant improvement, reaching 76% of pre-pandemic activity in the latter half of the year.
The technology sector reclaimed its position as the largest share of national office leasing in 2024, following an active second half of the year. The finance industry maintained a strong presence, achieving nearly 90% of its pre-pandemic leasing volume. Notably, law firms, architecture and engineering firms, and logistics and distribution companies all surpassed their typical pre-pandemic averages in 2024.
Leasing strategies have shifted in response to the current economic environment. With higher interest rates and a diminishing supply of high-end options, first-generation new leases and relocations accounted for less than 6% of leasing volume in 2024. Instead, renewals and extensions have become more prevalent.
Despite the overall reduction in nominal rental rates on executed leases, a closer examination reveals continued growth in specific market segments. Effective rents for first-generation space grew by nearly 17% year-over-year, while second-generation leases and renewals both saw approximately 7% growth. Importantly, effective rents outpaced face rates in 2024, indicating a plateau in concession rates after years of significant increases.
Asking rates have shown marginal increases, with same-asset rents growing 0.2% over the past year. However, it's worth noting that since Q4 2019, same-asset rents have only increased by 6.1%, significantly lagging behind the cumulative CPI growth of 23.1% during the same period.
JLL also reports that the sublease market exhibited steady improvement throughout 2024. New additions to the sublease market declined each quarter, with a cumulative decrease of 26% year-over-year. Backfills have been active, growing 11% year-over-year despite declining availability levels. High-quality subleases have attracted expanding tenants, as exemplified by Snowflake's 773,000-square-foot sublease in Meta Platforms' Menlo Park campus, which stands as the largest sublease deal of 2024.
As a result of these positive trends, sublease vacancy levels have decreased for five consecutive quarters, returning to mid-2022 levels.