Net absorption of office space turned positive in the second and third quarters of 2024, following five consecutive quarters of shrinking demand. Although it is still possible that a recession could delay a recovery, recent trends suggest the office sector is stabilizing and that demand for office space will grow modestly in 2025, according to the NAIOP Research Foundation’s Office Space Demand Forecast, released.
The report was authored by Hany Guirguis, Ph.D., Manhattan College and Joshua Harris, Ph.D., CRE, CAIA, Fordham University.
Net absorption is the amount of space occupied less the amount that is vacated in a given period. According to the report, office space absorption was 1.0 million square feet in the second quarter of this year and 4.9 million square feet in the third quarter. “Net office space absorption in the fourth quarter of 2024 is expected to be 9.4 million square feet, with another 10.8 million square feet of positive absorption for the full year in 2025 and 3.9 million square feet of positive absorption in the first three quarters of 2026,” said the report.
The authors note that the office market has benefited from the sustained outperformance of the macroeconomy and jobs market, and some prominent firms have indicated they are requiring workers to spend more time in the office than in prior years. Recent positive absorption should be seen as an encouraging sign that demand for office space has begun to stabilize, though anemic demand growth has yet to catch up with new construction.
According to data provider CoStar, 17.0 million square feet of net new space was delivered in the second and third quarters of 2024, resulting in a small increase in the average vacancy rate, from 11.7% to 11.8%. The pace of new deliveries has slowed from 27.1 million square feet delivered over the second and third quarters of 2023.
“We’re pleasantly surprised to see positive absorption in the office market, driven by demand in the tech sector and the decisions of many companies to bring their teams back to the office,”said Marc Selvitelli, CAE, president and CEO of NAIOP. “We are optimistic that these prove to bedurable trends.”
