U.S. office properties lost more than 8M SF of occupancy in the first quarter, halting the momentum shown in late 2024 when office market absorption went positive for the first time since 2021.
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The 8.1M SF of negative net absorption was driven by federal lease terminations, federal contractor sublease additions and buildings removed from the inventory for conversion, according to a JLL report.
Although the Department of Government Efficiency has been inconsistent with its federal lease termination plans, it had terminated 653 leases totaling 7.5M SF throughout the country as of April 15, according to JLL’s DOGE Federal Lease Termination Tracker. That accounts for about 4% of General Services Administration-leased inventory in the U.S.
DOGE, the agency tasked with slashing federal bureaucracy and led by billionaire Elon Musk, could terminate up to 52% of GSA leases by the end of President Donald Trump’s term.
The occupancy losses brought net absorption back into negative territory. Tenants had leased 276K SF more than they vacated in the fourth quarter. But even the negative Q1 figure is a 60% improvement from a year earlier, the report says.
The occupancy slide was offset by new leases. Leasing activity was relatively high last quarter at 50.4M SF leased, according to the report. That is down from the postpandemic high of about 53M SF in Q4 but up 15% from a year earlier.
Absorption is expected to stabilize and vacancy rates are expected to plateau, then decline for the remainder of the year, largely due to diminished downsizing activity, JLL said.
Larger tenants trimmed just 6.6% of space upon lease expirations last year, the report says.
National office vacancy marginally increased during the first quarter to 22.6%, but total availability decreased due to inventory removals.
Net inventory losses are accelerating as conversion and redevelopment volume remains high.
Overall inventory declined by 11M SF as more than 15M SF of conversion projects began in the first quarter and just 3.5M SF of new office product delivered. This is the lowest rate of completions of new office buildings in more than a decade, according to the report.
