Renewal rates are on the rise with fewer relocation options

June 19, 2024
  • Jacob Rowden
  • Economic defensiveness, dwindling relocation options, and capital constraints for buildouts are driving more tenants to renew expiring leases in the past year—though renewal rates had fallen to near 20-year lows in 2022, sharp increases in the past year now reflect two-thirds of large tenants opting to renew rather than relocate.
  • In 2022, half of the 10 largest leases were renewals; in 2023, six of the largest ten were renewals and eight of the 10 largest leases YTD have been renewals, including the four largest office leases of the year so far—Barclays and Bloomberg renewed nearly 2 million s.f. in Manhattan, Snap renewed 467,000 s.f. in Los Angeles, and the Department of the Treasury renewed over 400,000 s.f. in Cincinnati.
  • Renewals are one of several strategies whereby tenants and landlords are avoiding the burdens of large capital expenditures for new buildouts—tenants have also actively backfilled attractive sublease options that have been listed, and spec suites or other pre-built spaces have leased up at a faster rate over the past 18 months.
  • Renewal probability is expected to continue trending upwards over the medium term: transaction activity for larger tenants is increasing, high-quality availability is starting to decline across many markets, and a rapidly-declining pipeline will offer few new options to be delivered for the next several years.