T
he US office real estate market appears poised for a turnaround in 2025, driven by a strong economy and easing interest rates. As the economy continues to grow, with real GDP expanding by 3% in Q2 2024 and 3.1% in Q3 2024, demand for premium office spaces is increasing. Return-to-office mandates are also contributing to this trend, as companies seek to boost productivity and efficiency.

    The downtick in prime office supply has created a favorable environment for office REITs. The US economy's resilience, fueled by lower unemployment and higher wage growth, is driving consumer spending and boosting demand for office space. According to a CBRE report, the Tenants in the Market index has seen positive growth of 10 points year-over-year in the 11 largest US office markets.

    The Fed's interest rate easing policies are providing a boost to the economy, making business expansion plans more attractive by reducing borrowing costs. Although the December rate hike was lower than anticipated, it still offers some comfort and sets the stage for better economic growth. Strong corporate performance and lower interest rates will likely lead to increased hiring, driving demand for office spaces.

    After struggling through a COVID-19-induced lull, premium office spaces in the US are experiencing robust demand across the board. Tenants' preference for high-quality office spaces with amenities is driving this trend, with office occupancy in gateway markets 800 basis points higher than the overall average, according to Cushman & Wakefield's Q3 2024 report. Return-to-office mandates will further accentuate demand for office spaces as companies seek to enhance productivity and efficiency.