Office Leasing Posts 14% Quarterly Drop, Capping Year of Weakening Demand

Deal Sizes Retreat Again After Two Periods of Growth, CoStar Data Shows

By: Mark Heschmeyer and Nicole Shih

U.S. office leasing activity, already trailing pre-pandemic peaks, fell further in the fourth quarter, according to CoStar data.

The amount of office square footage leased in the fourth quarter was 14.4% lower than the third quarter, and 20.3% lower than the fourth quarter a year earlier. The number of leases signed was the lowest since the third quarter of 2021.

The annual volume of office square footage signed in 2022 was 23.6% lower than 2019, the year before the coronavirus pandemic.

A shift resulting in more hybrid work arrangements contributed to 24.7 million square feet more of office tenant move-outs than move-ins in 2022, according to a CoStar office market analysis, for the third straight year of negative net absorption. Occupancy nationwide in the fourth quarter was down 2% compared to the first quarter of 2020.

The average lease size in square footage shrunk 5% in the fourth quarter from the third quarter after increasing in the two previous quarters. The annual average size of office leases signed in 2022 was 15.2% lower than in 2019.