As renewal rates fall, new leasing is recovering faster than renewals and extensions
- Jacob Rowden
Caution at the outset of the pandemic lifted the renewal rate for office leases to a multi-decade high, but intense flight to quality during the recovery drove down renewal activity as relocation into higher-quality space became the dominant strategy. As a result, while renewals were resilient during the height of the pandemic, new leasing and relocations are now dominating demand, reaching nearly 80% of pre-pandemic averages, while renewals saw less than 60% of pre-pandemic volume in recent quarters.
Renewal likelihoods remain challenged for older-vintage assets facing near-term expirations: Wells Fargo recently announced it will be vacating its space in the late 80s-vintage One Wells Fargo Plaza in Charlotte to consolidate employees in the more recently-developed Duke Energy Plaza.
As office demand begins to accelerate towards the end of the year, new leasing will still capture a heightened share of gross leasing activity amid continued flight to quality underpinned by a stubbornly tight labor market.