Gradual improvement in demand continues

Global office leasing volumes declined by 12% from the previous quarter during Q1 2024, in line with normal seasonal patterns, but were 8% above levels from a year earlier. Performance diverged across regions, with leasing activity up 14% year-over-year in the U.S. and 12% in Asia Pacific, while volumes were 7% lower in Europe. Upgrading into higher-quality space continues to be a priority for many occupiers, and downsizing trends contributed to continued occupancy losses in the U.S., although net absorption was positive in other regions.

The global vacancy rate rose by 30 bps to hit 16.5%, with additional increases in North America and Europe, while vacancy edged lower in Asia Pacific. New completions are set to rise this year, before declining by 27% in 2025. Construction has already slowed significantly in North America, with the first decrease in U.S. office inventory on record during Q1 as conversions and redevelopments removed stock from the market. In Europe and Asia Pacific, development pipelines are set to remain above long-term averages through 2026 before declining. Completing projects will push up overall vacancy, while leasing volumes are expected to rise from 2023 levels across regions and limit availability in new space and sought-after locations.

Future trends: A more balanced market coming into view 

Short-term: Despite a lack of clarity around the timing of interest rate decreases by major central banks, sentiment is improving as fears of a hard landing recede and labor markets remain healthy. In the U.S., active tenant requirements are at their highest level in two years, while in Asia Pacific an elevated supply pipeline is providing tenants with more options as companies focus on upgrading into higher-quality space. This should enable a gradual increase in office leasing activity through the year, although overall vacancy will continue rising on the back of tenant downsizing in the U.S. and new supply in other regions. Leasing volumes will remain below pre-pandemic levels but are expected to increase by about 10% globally from the previous year.

Long-term: A continued focus on upgrading will limit availability for the highest-quality and sustainable space in the best locations. While the new-construction wave is still peaking in Asia Pacific, many global markets in the West (especially the U.S.) will see office deliveries slow due to costs and constrained financing options, further limiting high-quality space options over the next two to three years. As demand from employment growth offsets corporate downsizing this will gradually shift the market towards more balanced conditions and support strong rental growth for in-demand locations and spaces.