As we enter the first quarter of 2025, the office real estate market presents a complex picture. Demand for office space has been on the rise since late 2024, led by New York's surge in office attendance and a recent government return-to-office mandate. Despite this, ongoing supply additions have kept the national vacancy rate near a record high of 13.9%. While some markets are showing signs of recovery, demand remains weak in many major areas.
Smaller occupiers are upgrading their spaces, but larger ones are staying put due to limited availability in premium buildings and slower headcount growth. The supply pipeline is shrinking, with only 67.4 million square feet under construction, the lowest since 2012. Rents are expected to grow modestly at around 1% per year through 2026. Economic uncertainties, including inflation and interest rates, pose risks to this outlook, but increased attendance requirements and potential fiscal stimulus could support office demand.
National office real estate trends
- Vacancy in class A space is nearly 21%.
- Quarterly leasing volume throughout 2024 was consistently about 10% below its five-year pre-pandemic average. Much of the decline was driven by average lease sizes 15% to 20% smaller than the 2015–2019 average.
- Rent growth is expected to remain positive but near 1% over the next couple of years due to aggressive discounts by new, low-basis owners, limited availability in premium buildings, and a substantial amount of sublease inventory.
- Less than 45 million square feet in new deliveries were completed in 2024, the least since 2014 and far below the 10-year average of 70 million square feet.
- The current 67.4 million square feet under construction is the lowest since 2012. This number is expected to shrink further. In 2024, less than 18 million square feet broke ground, significantly below the previous record low of 29 million square feet in 2010.
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Information contained in this report is provided, in part, from third-party sources, including the U.S. Bureau of Labor Statistics, the Bureau of Economic Analysis, Engineering News-Record, and CoStar Group. Even though obtained from sources deemed reliable, no warranty or representation, expressed or implied, is made as to the accuracy of the information herein.
