The U.S. Office Market Gained Momentum in Q3-2025
The outlook for an office market recovery is becoming increasingly optimistic, and signs of improvement are evident in various U.S. markets.
The uptick in leasing predicted for 2024 and early 2025 is beginning to be reflected in market statistics, which show that vacancy has declined for the first time since 2020 and that net absorption has been positive for five consecutive quarters. Nevertheless, several key markets still face limited demand growth in the aftermath of the pandemic.
The two markets often highlighted for their downturns in 2021 and 2022 have begun to rebound. Manhattan has successfully returned to pre-pandemic leasing levels, resulting in a decline in vacancy rates, improved occupancy, and rising asking rents.
San Francisco, which also faced significant challenges post-pandemic with a peak vacancy rate of 31.2%, is now enjoying growing demand for office space driven by artificial intelligence (AI) companies. Because it has the highest concentration of AI talent in the U.S., San Francisco’s market fundamentals are stabilizing as these companies begin to occupy spaces after leases signed in 2024.
The Texas office markets of Austin, Dallas-Fort Worth, and Houston have grown significantly in 2025, absorbing 4.4M SF of space through the first nine months of 2025. Wells Fargo‘s new 800,000 SF campus in Dallas has enlarged the financial services sector’s footprint in the region and will accommodate 650 new jobs.
Houston’s consistent growth throughout the year has been driven by demand from tenants in the energy, utility, legal, and financial services sectors. Led by Dallas, the state’s office occupancy has grown in three of the last four years.
CAPITAL MARKETS: INVESTMENT RISING
Office leads all asset classes in sales volume growth of 38% over the past year. In the third quarter, sales totaled $19.4 billion. CBD volume is up 62% as larger deals begin to move again. There are signs that institutional capital is reentering the market, while cross-border sources are also selectively acquiring assets.
Meanwhile, MSCI reports that office pricing rose 7.1% over the past 12 months. Manhattan remains the runaway leader for sales, up 84% on $7.1 billion in volume, with Dallas, San Jose, Los Angeles, and Houston rounding out the top five.
LOOKING AHEAD
The global macroeconomic environment remains uncertain, creating significant headwinds for planning and investment in all sectors. Corporations are being cautious, slowing hiring, deferring expansion plans, or reallocating resources to mitigate risk, which can complicate forecasting and strategic decision-making.
Despite inflationary pressures, interest rate volatility, and global instability, many companies are moving forward with their operations, having grown accustomed to this climate over the past 12 months.
SUBLEASE AVAILABILITY
The volume of new sublease space on the market has dropped significantly compared to 2021 and 2022. After reaching a peak of 238M SF in mid-2023, sublease availability has steadily decreased to 182M SF as of the third quarter.
Properties listed for a long time are nearing lease expiration’s and will return to direct marketing by owners. In recent years, sublease availability has been about 50%–75% higher than sublet vacancy, indicating some tenants have been marketing space to potentially cut real estate costs
Vacancy
- The nation’s average vacancy rate declined 10 basis points from last quarter, to 18.3%, the first quarterly decline post-pandemic.
- The Class A and B vacancy rates declined 10 basis points and 20 basis points over the quarter, respectively. However, each rate remains 20 basis points higher than in Q3 2024.
- The CBD average vacancy rate was unchanged from last quarter, at 19.4%, while the suburban vacancy rate declined 20 basis points, to 17.8% over the same period, due to building conversions.
Net Absorption
- Quarterly net absorption totaled 10.6M SF, and the year-to-date total was 13.7M SF. Almost 60% of all markets posted positive net absorption for the third quarter.
- Class A properties have continued to outperform, absorbing 18.5M SF in 2025, while Class B and C buildings are struggling to find prolonged post-pandemic success.
- Most of the growth was in the Northeast and South, while the Midwest and West had additional occupancy declines in 2025.
Rental Rates
- Class A asking rent fell 0.2% quarter-over-quarter, while the average Class B rate increased 0.4%. The Class C average rate decreased 0.4% during the same period. However, over the past year, the Class A rate declined 0.1%, while Class B and C properties posted increases of 1.8% and 1.5%, respectively.
- The Tampa Bay office market’s rent growth was the highest in the U.S. in the quarter, increasing 10.1%, to $32.08/SF.
Construction Activity
- New development remains constrained, with only 31.2 million SF in the pipeline. However, a handful of new projects were kicked off during the quarter in select markets, as developers believe demand will rise over the next couple of years.
- Eleven markets account for 61% of the total development pipeline.
- Year-to-date 2025, just over 13.7M SF of new space was completed, significantly below the historical levels seen at this point in the year.
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