U.S. Office Reports

For the data behind the commentary, download the full Q3 2024 U.S. Office Report.

The Long-Awaited Pivot Arrives  

The Federal Reserve announced a 50-bps cut to the federal funds rate during its September meeting, marking the beginning of its much-anticipated rate-cutting cycle. Alongside resilient economic performance, confidence continues to form around the prospects of a “soft landing,” which remains the most probable scenario, according to the consensus forecast, but is certainly not guaranteed. 

In Q3 2024, the U.S. economy continued to show its resilience. Overall employment increased by 0.4% QOQ, adding 557,0000 nonfarm jobs in the past three months led by a strong September (+254,000 jobs). Employment growth was strongest in leisure and hospitality (+1.0% QOQ), healthcare and education (+0.8% QOQ), and government (+0.5% QOQ), while office-using employment was flat. If you exclude temporary employment, office-using employment grew by 40,400 jobs in Q3, which is weaker than prior quarters, but still positive. Employment in the information sector peaked in mid-2022 at 3.1 million jobs and has generally flatlined since; currently it has 64,000 (3.6%) fewer jobs than it did then. This has been an important contribution to dynamics in office demand over this time.  

National Vacancy Increased in Q3, but a Third of U.S. Markets Saw Flat or Declining Vacancy Rates  

U.S. office vacancy grew by 55 bps QOQ, marking the 10th straight quarter of increasing vacancy. At 20.9%, national vacancy is at its highest point as recorded by Cushman & Wakefield Research, having increased by 830 bps since Q1 2020. 

In Q3 2024, there were 27 U.S. office markets where vacancy declined and there were another seven markets that remained essentially flat. The largest declines tended to be in smaller Sunbelt markets, such as Roanoke, Fredericksburg, Tampa and St. Petersburg. Other non-Sunbelt markets that saw QOQ drops in their vacancy included San Mateo County and Tulsa. There are 32 markets, out of the 93 tracked by Cushman & Wakefield Research, with vacancy rates below 15%. 

Sublease Availabilities Flat for Third Quarter in a Row 

In the wake of the pandemic, occupiers responded to the sudden abundance of remote work by putting substantial amounts of space on the sublease market, adding 42.6 msf in the five quarters ending in Q2 2021. Sublease availabilities inventory plateaued around 100 msf for a year from mid-2021 to mid-2022 but grew rapidly again as occupiers looked to shed costs in the wake of rising interest rates. In the five quarters starting in Q2 2022, the amount of space available for sublease increased by 44.4 msf. Over the past five quarters, however, almost no new sublease space has been added; inventory has increased by just 4.9 msf (+3.4%) since Q2 2023. 

The slowing sublease market could be a sign of stabilization for the broader office market as a peak in sublease availabilities is typically a precursor to declining overall office vacancy—as the sublease market can act as a leading indicator of business sentiment. Sublease space hardly budged this quarter, with 1.1 msf added (+0.7%) in Q3. Available sublease inventories have declined year-over-year (YOY) in more than half of U.S. markets. 

The U.S. office space under construction pipeline is down to 35.9 msf, its lowest point in twelve years. The sharp slowdown in the construction pipeline should help insulate the higher quality existing assets in the coming years as new deliveries shrink.  

For the data behind the commentary, download the full Q3 2024 U.S. Office Report.

¹ The six U.S. gateway markets include: Boston, Chicago, Los Angeles, New York, San Francisco and Washington, DC