Downsizing Trends Slow Rapidly

What this means:

Key Insights on Downsizing Rates

Larger tenants facing lease expirations are scaling back their office downsizing efforts, signaling a critical shift in the commercial real estate landscape. In 2024, tenants with over 25,000 square feet of office space cut their footprints by an average of 7.9%—the most substantial year-over-year improvement since the pandemic began.

Notably, Q4 2024 recorded the lowest downsizing rate to date, with expiring leases associated with just over 200,000 square feet in footprint reductions—a stark contrast to the peaks of 2021 and 2022.

Positive Absorption Returns: A Market Shift

For the first time since 2021, the office market saw positive net absorption in Q4, with 276,400 square feet of space added. This marks only the second quarter of positive gains since the onset of the pandemic. The resurgence of tenant confidence and growing expansion activity are driving this critical milestone.

A few key contributors to this trend include:

Blue Owl Capital: Added 76,000 square feet in New York.
Alarm.com: Expanded by 50,000 square feet in Washington, DC.
FDIC: Grew by 45,000 square feet in Dallas.

Office Expansion Trends

A remarkable 63% of tenants with expiring leases in 2024 either maintained or expanded their office footprints, signaling a departure from the downsizing norms of previous years. These expansions are occurring across industries, including finance, technology, and government, as organizations prioritize strategic growth and improved access to talent.

What This Means for Landlords and Tenants

This shift in office leasing dynamics presents unique opportunities and challenges:

For Tenants:
Companies are using expansions to position themselves competitively in the talent market. This trend underscores the importance of aligning office strategies with recruitment and retention goals.
For Landlords:
The slowdown in downsizing rates creates opportunities to focus on tenant retention. Offering flexible lease terms and emphasizing amenities that cater to hybrid work environments can help landlords attract and retain tenants

Broader Market Implications

This resurgence of positive absorption and slowing downsizing activity reflects a stabilization in the office market. However, regional variances and economic factors will continue to play a role in shaping demand. Key areas to watch include:

The balance between hybrid work models and space utilization.
Tenant preferences for high-quality, sustainable office spaces.
Regional trends in office leasing, with growth concentrated in specific markets.

Future Outlook

As we move into 2025, the office market shows promising signs of stabilization. With downsizing rates at record lows and expansion activity on the rise, landlords, tenants, and brokers have the opportunity to redefine office strategies for a post-pandemic world. The focus will likely shift toward:

Optimizing office footprints for collaboration and efficiency.
Adopting workplace designs that enhance employee satisfaction and productivity.
Exploring long-term leasing strategies to mitigate future market fluctuations.

Success Stories: Leading the Charge

A few of my clients' stories linked here that exemplify how strategic office space, location, and workplace design can drive growth and position organizations for both short-term and long-term success.

Take the Next Step

Many companies lose millions of dollars due to lack of employee engagement, loss of top talent, and inefficient or unneeded office space.

Working with me, clients gain the insights, the analysis, and the plan to obtain lease and office space that retains the best employees, attracts top talent, and maximizes profitability.

To Contact Gregg Metcalf:

email: gregg.metcalf@jll.com

mobile: 404.661.9284