Office Leasing Price Will Keep Reducing: Reasons and Predictions

One of the largest leaders of commercial real estate operations, Cushman&Wakefield have presented a report in which they say that the slowdown in the growth rate of office rental prices in the United States will continue for the next year. The company has researched the situation extensively and weighed all the factors affecting the office real estate market over the last five years. 

The experts insist that the significant fall in office rental rates may last for more than a year, and in 2024 the lease growth will be at most 0.8%, which will have virtually no effect on long-term contracts with tenants. Today is one of the best moments when the price of offices for rent in New York city and other metropolitan areas of the country is most favorable. The corporate market may have already started to show signals of recovery from the almost 4-year crisis, but still, we should not expect quick results. 

Office Lease Market: What We See Now

Since the global pandemic crisis, demand for commercial real estate has stopped its steady decline. Still, new contracts are no longer as expensive as they used to be. Experts say that startups that are just looking for the right locations have better possibilities and are getting more beneficial contracts for renting offices and co-working spaces at a mid-market price. Lessors are no longer the masters of the situation and are forced to match the needs and financial budgets of their clients if they don’t want the buildings to sit empty for the next five years.

National Commercial Real Estate Market Circumstances

According to experts’ opinions, the first half of 2024 was an indicator of weak leasing activity, slowing down greatly compared to the peaks that could be felt in 2019. On a nationwide scale, this was reflected not only in the retention of the price of leasing square meters of commercial buildings but also in the pace of office development in the country’s central cities.

How the Office Rental Situation Is Different from State to State 

In general, the reduction in relevance of office space has been recorded in all regions of the US. But still, the first to stop raising prices were the states of the Eastern region. In business centers such as New York, Washington, D.C., and Boston, it is now possible to rent an office at much more reasonable prices than ever before. And the choice of commercial leasing locations will be much wider.

What Caused the Steady Decline in Value

Real estate agencies cannot name one single reason that has led to a situation of lower growth rate of office lease prices in the United States. 

After all, such reasons have already become several in 2024:

1. Direct correlation to the labor market, which is rapidly turning to remote and hybrid employment formats. Workplaces, to which the commercial real estate market is directly linked, have become the main conduit for companies. Experiencing the privileges of new work formats, some young companies and new-generation coworkers have realized freedom by reducing office space considerably, abandoning huge open spaces, and getting much financial benefit by using remote workers. This has led to an average rent reduction of over 13% compared to the pre-COVID period.
2. Increased competition between lessors who are fighting to keep the price stable. Office rental prices are still quite high, but that doesn’t mean that tenants don’t have the option of agency control, much adjusting the current price quotations. Having an office rental contract today, companies have a better chance of getting the best terms and final price.
3. Financial capital limits for companies due to the global security crisis. Both construction corporations and rental companies are facing difficulties due to economic instability. This causes developers to sell buildings at the lowest price and agencies to hold down office rental prices to satisfy clients. 

Drop or Growth: What Experts Predict

At the beginning of 2024, the U.S. commercial real estate sector was estimated at $23 trillion. And today analysts say that in the next five years, the challenges for this large-scale business sphere will remain quite serious.

Professionals from real estate agencies have repeatedly discussed that this situation is one of the most peaked in the last decade. But as with any business sphere, having reached the lowest point, further growth will be inevitable. Yes, at the moment, office leasing is more profitable for client companies than for owners. And at least until 2028 a huge jump in demand for office space is not expected. And this is really a great opportunity for young businesses to get the necessary square meters for work with the most advantageous conditions. 

Lessors, who of course would like to increase their capital faster, are experiencing some difficulties. Still, the market has a positive balance, which ensures the flow of investments and slow but steady growth of the office real estate sector in the perspective.