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The US office market reached an important milestone in the third quarter. The overall availability rate peaked and is declining for the first time in more than five years. This comes as companies like Amazon have pushed for employees to return to the office five days a week, sending office attendance rates to a post-pandemic record in July. And joining us now with more is John Gates, JLL CEO of Americas markets. John, it's always good to see you. I have a friend, John, who works at Amazon. Believe me, he was texting me, he got he got that message. He was not happy. But you know what? Welcome to the party. John, let me ask you this.

The rest of us were excited, Josh, the rest of us were, let's just say.

I can imagine. So, John, um, let's start high level. The American office market, John, as it stands right now versus let's say a year ago, 12 months ago, John. The same, better, worse, how do you characterize it?

I would say it's been uh slowly recovering for some time now, maybe even 18 months. We saw an acceleration though in the third quarter and some of the statistics start to look pretty good. Uh total leasing volumes in Q2 and Q3 were about 86% of pre-pandemic levels, which is the highest that it's been.

And the Fed, John, we know did deliver that that supersized cut, surprised some. How does that ripple through the sector?

Uh it affects the capital market side of our business pretty meaningfully. Commercial real estate, as you know, is a highly leveraged asset, typically. And so declining cost of debt capital would be a very good thing. The futures markets would imply, you know, interest rates will continue to come down, but perhaps a little slower than we thought even a month ago, just given the jobs report recently. But it's it's good news by and large because of the way you capitalize commercial assets.

And John, let me ask you, as you look across the country in terms of, you know, relative strength regionally, what would you call out, John?

New York for sure. Boy, New York has been very active this year, which is great to see and there's a real pace to the city and our industry again. And then I would say after that largely the the larger markets across the sunbelt are still quite active. So we're doing fairly well here in Dallas, um Nashville, Phoenix, Atlanta, the Carolinas, the Florida markets are still solid. Uh notwithstanding what's happening down there recently.

I I am interested there, John, because you you mentioned Florida, Carolinas. I mean, how do these hurricanes, first Saleen, now how does that potentially impact what you're seeing out there?

To the extent they become, you know, long-term phenomenons, it could be a concern for some corporates and locating jobs. Typically though, anymore, uh the jobs follow people. So if people, if populations start to decline, then jobs will decline there. If if people are still moving there, then I still think you would see jobs going there. And certainly we do in South Florida right now.

And and you mentioned these areas where you see relative strength. I am curious, John, just conversely, what would you call out as, you know, relatively weaker regionally?

The Pacific Northwest is still a little slow because large tech is not adding positions yet, other than in the artificial intelligence space, um which you know, you guys report on quite thoroughly. So there's there's been job growth there and therefore net absorption. But broadly tech is not, and so that's one of the slower areas. Uh the Midwest has been slower, although we've seen a bounce back in in Metro Chicago is obviously the biggest market. Um and then certain submarkets, some of the CBDs downtown LA would still be fairly slow, but the West side is not.

When tenants are shopping around, John, I'm curious, what are they shopping around for? Are there trends there?

Yeah, there's very clear trends. We call the headline flight to quality, which uh maybe is a euphemism for newer and and nicer and and more amenities and other cool things you can do in an office building, gyms with classes and yoga and other things like that, uh great places to eat, you know, rooftop decks are a big deal. And then location matters a lot too. If we learn anything in the pandemic is people don't like the long commutes. And so my example in LA is a good one. Even at our own firm, we've had an awful lot of our people used to go downtown every day want to move to our office on the West side in Century City, and that would be you know, not uncommon.

And so and so in terms of the sort of the kinds of buildings people want, John, you know, where the appetite is, are you actually seeing, you know, any kind of supply constraints there?

You're starting to on the top end because that's where leasing has been concentrated. So new, again, newer office buildings, perhaps mixed use buildings, highly amenitized, and a lot of entertainment options there as well. We've had a very low construction start environment, so there's only about 40 million square feet of office space under construction in the United States and only about 30 million square feet of starts this year. In addition to that, we see space um becoming something different than office space. So conversions to multifamily or perhaps hospitality, or in some cases even torn down, although that's not very common. And so the combination of those two things means the actual amount of office space in the United States is probably contracting slightly for the first time in a long, long time.

John, always great to have you on the show. Thank you for joining us.

Thank you for having me.