A slowdown in new office construction, combined with declining interest rates, is expected to help landlords. Completions are forecast to fall to 17 million sq. ft. this year, far below the decade average of 44 million sq. ft., easing oversupply. Vacancy rates remain high, projected to peak at 19% in 2025, but the shortage of new premium buildings is already creating competition for prime space.
Flight to quality
A clear divide is emerging between trophy office towers and older buildings. Tenants are gravitating toward Class A properties in mixed-use districts with high-end amenities. By contrast, Class B and C properties in less desirable locations face high vacancy and rent pressure. “Prime spaces will become more scarce… vacancy in prime buildings is expected to return to its pre-pandemic rate of 8.2% by 2027,” CBRE projected.
This trend is especially visible in New York City, where JPMorgan Chase is preparing to move into its new $3 billion headquarters at 270 Park Avenue. The 60-story tower will house up to 10,000 employees and signals confidence in Manhattan’s rebound. “It’s a very big deal,” Kathryn Wylde, president of the Partnership for New York City, told Wall Street Journal. “It’s a statement about the future of New York City.”
Local markets show mixed results
New York has outpaced other US cities in recovery. In July, office visits in the city surpassed 2019 levels, making it the only major market to do so, according to location analytics firm Placer.ai. Leasing in Manhattan surged to 12.2 million sq. ft. in the first quarter, the strongest since 2019, data from Savills shows.
Elsewhere, markets such as Austin, Nashville, and Miami are expected to see higher leasing volumes thanks to demand for new prime office space. Many tenants are also choosing to renew existing leases rather than relocate, citing high moving costs and landlord risk assessments.