Recovery Spreading to Additional U.S. Office Markets

by Coy Davidson | February 15, 2026

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U.S. Office Market Outlook Report | Q4 2025

The U.S. office market ended 2025 with renewed momentum and increased activity in more markets. This is expected to continue into 2026 as companies across all industries have settled into post-pandemic operations. Leasing and investment decisions in 2026 will be hyper-focused on the local market, with greater evaluation and understanding of the driving fundamentals and forecasts.

U.S. Office Market Overview

The U.S. office market is beginning to show early signs of recovery in many major metros as core fundamentals stabilize. Nationally, the vacancy rates have begun to decline. Stronger demand for high-quality, amenitized space continues to lead the rebound, supported by increased office attendance. While recovery remains uneven and highly divided by asset quality and location, the broader trend is that the market may be gradually strengthening as supply pipelines shrink, tenancy improves, and fundamentals stabilize.

Vacancy is decreasing across the country as the development pipeline reaches historical lows and a large number of obsolete buildings are removed for conversion. More than 100M SF of space has been removed from the national inventory in 2025. The removal of noncompetitive space has had positive impacts on many markets, while tenant demand remains focused on the top tier of space. More than 50% of markets are moving towards recovery, with only a handful having experienced additional occupancy losses this year. Manhattan continued to lead the country, with record-high absorption and pre-pandemic leasing volume. Dallas and Silicon Valley saw additional growth in 2025, while Boston and Detroit experienced growth in the fourth quarter to offset losses throughout the rest of the year.

The spread of return-to-office mandates across all industries is boosting many local office markets. More firms that had shed space to cut costs a few years ago are now expanding to accommodate all employees in the office. The peak days for office occupancy are Tuesday, Wednesday, and Thursday. Mondays and Fridays have significantly lower occupancy nationwide.

Uncertainty about macroeconomic conditions is driving employers to hold steady, remain lean, and rely more heavily on technology to fill vacancies when possible. How this approach will affect office space needs in the long term is uncertain, and many experts expect it to be a pause in hiring rather than a full-scale elimination of jobs or functions.

CAPITAL MARKETS: INVESTMENT RISING

Office investment has continued to rebound, with total volume of $73.3 billion in 2025, up 15.8% from the previous year. While this figure remains 50% lower than the $142.2 billion in transactions in 2021, the growth in 2025 marks the second consecutive annual increase in volume. Properties traded reached 4,820, up 10% from 2024.

The Bay Area recorded the largest year-over-year increase in office investment, driven by heightened leasing from AI companies, with transactions totaling $8.1 billion — an impressive 126.1% increase from 2024. Improvements in office leasing fundamentals nationwide are fostering cautious optimism for a sustained recovery. Investors are finding distressed sales, acquiring properties at a discount, and making capital improvements to attract new tenants. In multiple markets, buildings are being traded in anticipation of redevelopment, as non-competitive properties are earmarked for conversion to alternative uses.

LOOKING AHEAD

The U.S. office market ended 2025 with renewed momentum and increased activity in more markets. This is expected to continue into 2026 as companies across all industries have settled into post-pandemic operations.

Leasing and investment decisions in 2026 will be hyper-focused on the local market, with greater evaluation and understanding of the driving fundamentals and forecasts. Companies continue to evaluate all of their real estate holdings and leases, looking to improve efficiency by upgrading to newer buildings or spaces when possible. These decisions will continue to divide the market’s property classes.

SUBLEASE AVAILABILITY

Sublease availability continued its decline, to 173.6M SF by the end of 2025, 5.4% below last quarter and 16.4% below one year ago. It peaked at 237.9M SF in mid-2023 and has declined in every quarter over the past 2.5 years.

Multiple factors have contributed to this decline. As many spaces had their terms expire, landlords have taken them over and are advertising for lease, slowing the decline in overall availability.

Nationally, dozens of older Class B and C buildings have been removed from the office inventory for conversion, further reducing the rate. The diminishing development pipeline has spurred new interest in sublet space in the top tier of the market, especially for large blocks.

Market Fundamentals

NET ABSORPTION

Demand and leasing are improving in many markets, with 53% posting positive net absorption for the year. This is expected to continue in 2026.
Net absorption was positive for the sixth consecutive quarter, as 7.1M SF was occupied, bringing the year-to-date total to 18.6M SF. That is the highest annual total since 2019.
Manhattan continued to lead the country into recovery, absorbing 15.6M SF during the year, a historical best. Dallas was second, at 2.4M SF absorbed, driven by strong growth in the financial services sector.
The Northeast and South posted positive net absorption in 2025, 17.6M SF and 5.7M SF, respectively. Growth in the Midwest and South declined year over year, but they posted positive absorption in the fourth quarter.

VACANCY

The vacancy rate decreased for the third consecutive quarter, to 18.2%, down 10 basis points over the quarter, but still 20 basis points higher than one year ago. In Q2 2025, vacancy reached a historical high of 18.4%.
The Class A vacancy rate declined 10 basis points over the quarter, to 21.1%, while the Class B vacancy rate also declined 10 basis points, to 16.8%.
The country’s average CBD vacancy rate was 19.2%, down 10 basis points from last quarter, but up 40 basis points from one year ago. While the vacancy average in Class B properties in the CBD dropped from the third quarter, the Class A average rate remained unchanged. Portland has the highest CBD vacancy rate in the country, at 37.1%, as companies have migrated to suburban submarkets over the past five years.

ASKING RENTS

Asking rents are starting to shrink in more markets, as new supply is limited and leasing is focused on top-tier properties. The average rent is expected to decline slightly in 2026.
The U.S. average rental rate of $37.69/SF at the end of 2025 was 2.3% higher than at the same point in 2024, and a 1.2% increase from Q3 2025. That is a new all-time high.
Manhattan, San Francisco, Silicon Valley, Miami, and Washington, D.C., hold the five-highest market-wide rent averages across all classes.
The Class A average rate of $42.65/SF grew slightly, up 0.8% from last year; in contrast, the Class B rate was up 5.9%, to $32.28/SF.
The Northeast has the highest average rent across all classes, $44.53/SF, while the Midwest has the lowest, $27.48/SF.

CONSTRUCTION ACTIVITY

New development continues to contract as costs for new construction remain high, with a pipeline totaling only 25.8M SF, a dramatic drop from the peak of 158M SF at the end of 2019. Ten markets account for 62% of the total pipeline.
New supply of 5.7M SF in the fourth quarter was the highest quarterly total over the past year.
For 2025, deliveries total 18.8M SF, the lowest annual total in more than a decade. The current environment of higher material costs and high interest rates is affecting the market; preleasing commitment volume is limited, as new construction requires rents above market rates.
More than one-third of the space constructed in 2025 was built in the South region, while only 14% was built in the Midwest.