Global office leasing recovery continues

Global office leasing continued to recover in Q1 despite a volatile economic backdrop. Take-up volumes declined by 11% from the previous quarter, in line with normal seasonal patterns, but were 9% above levels from a year earlier. All three regions saw activity increase from Q1 2024, with volumes rising by 15% in North America, by 4% in Europe and by 3% in Asia Pacific. Renewals and extensions are accounting for a higher share of activity across regions amid limited new supply in North America and Europe, combined with rising rents and fit-out costs.

The global vacancy rate increased by a further 10bp to 16.9% in Q1, with vacancy higher in North America and Europe but falling in Asia Pacific. Groundbreakings have fallen to a new record low in the U.S., and while construction is rising in Europe, supply in central submarkets remains exceptionally tight. This is expected to contribute to vacancy peaking and beginning to fall in both regions this year. With less new space coming to the market and availability concentrated in less desirable buildings and locations, occupiers will need to explore options earlier as competition for the best space intensifies.

Future trends: Rising need for repositioning and investment to meet workplace expectations

Short-term: Although an unpredictable economic outlook is likely to slow decision-making, the office leasing recovery is expected to continue in 2025. In the U.S. and Europe, activity will be supported by continuing office re-entry programs, reduced downsizing rates and a build-up of lease expiries. In Asia Pacific, an elevated supply pipeline will contribute to activity and allow tenants to upgrade into new space.

Long-term: Limited new construction and high pre-leasing rates will intensify competition for high-quality central space in many markets. With prime rents and fit-out costs continuing to rise, companies will need to review their requirements and plan for lease expiries early to manage costs. This will place additional emphasis on flexibility, renewals and extensions, while also contributing to stronger demand for refurbished projects and non-CBD submarkets. Vacancy will remain elevated in older and non-core buildings at risk of stranding, leading to more repositioning and conversion activity.