Demand recovery continues to strengthen

Global office leasing activity during Q3 was broadly level with the prior quarter but continued to strengthen from the same period in 2023, with volumes 12% higher year-over-year. Performance was mixed across regions, with expectations for a soft landing following the start of the Fed’s loosening cycle, moderating downsizing trends and progress on office attendance policies contributing to strong growth in the U.S. of 25% year-over-year, while volumes in Asia Pacific and Europe were largely unchanged. Global leasing is 11% higher than 2023 over the year to date and on track to register its highest annual total since 2019.

The global vacancy rate inched higher to 16.7% in Q3, rising in North America and Europe but declining in Asia Pacific. New completions in 2024 are projected to increase slightly from last year to 16.7 million square meters before decreasing by 20% in 2025, as higher construction costs and limited financing slow the development pipeline. New groundbreakings have fallen to their lowest level on record in the U.S. and supply will also slow in Europe going into next year, although new deliveries will remain above historic averages in Asia Pacific. Overall vacancy is expected to peak and start declining over the next 12 months, with availability for in-demand space and locations falling in many markets as leasing activity improves further and tenants focus on upgrading their portfolios.

Future trends: Reducing availability of top-quality space as construction declines

Outlook for 2025: Occupier demand will continue to improve in many markets with firm economic growth, loosening monetary policy and resilient labor markets. Office re-entry strategies are also gaining pace in lagging markets as companies lean back into offices as the primary place of work. Active tenant searches have increased from 2023 levels in the U.S., while there are signs of larger transactions returning to the market in Europe as occupiers try to secure space in highly competitive markets. In Asia Pacific, a growing focus on upgrading into higher-quality buildings enabled by an elevated supply pipeline in several markets and continued robust demand in higher-growth markets such as India are supporting activity. This should enable a continued gradual increase in office leasing volumes through 2025, while overall vacancy will peak and begin to decline as deliveries slow.

Long-term: New supply is set to fall and remain below recent peak levels in the U.S. and Europe over the coming years, while construction activity in Asia Pacific is focused on the region’s largest markets. As leasing activity improves further and tenants focus on upgrading their portfolios, supply shortages are emerging for in-demand space and locations in many markets. With high levels of pre-leasing, occupiers in the U.S. and Europe in particular are facing more urgency to avoid delays and start searches earlier to ensure they can find appropriate space. At the same time, there will be a need for significant refurbishments or retrofitting of older stock with design, locational and regulatory considerations determining which will remain viable.