After a prolonged downturn, office demand turned positive in the second half of 2025, led by sustained Class A absorption and a recovery that is spreading across U.S. markets. Vacancy pressures are easing as supply pulls back and sublease availability declines, signaling early but durable momentum heading into 2026.
Key Takeaways
Demand inflects positive: Office absorption turned positive in the second half of 2025, with demand broadening across more than half of U.S. markets.
Vacancy pressures ease: Vacancy growth slowed to its lowest pace since 2020, sublease availability continued to decline, and indicators suggest vacancy is nearing a peak.
Flight-to-quality persists: Class A demand remains resilient as occupiers pursue higher-quality space, while new construction stays at multi-decade lows, tightening competition.
Office Demand Gains Traction and Broadens Geographically
Office demand continued to improve through 2025, with net absorption turning positive in the second half of the year at +2.5 million square feet, marking the strongest back-to-back quarterly performance since COVID. Class A space led the recovery, posting roughly +3.5 msf of absorption in Q4 and more than +9.0 msf for the full year, as occupiers prioritized higher-quality buildings. While full-year absorption remained modestly negative at -6.7 msf, this represented a sharp improvement from the five-year average annual decline of approximately -50 msf. Importantly, the recovery broadened geographically, with 50 U.S. office markets posting positive absorption in 2025—up from 33 in 2024—and 14 additional markets turning positive in Q4, signaling expanding momentum heading into 2026.
Office Vacancy Stabilizes as Supply Pulls Back
Office vacancy showed clear signs of stabilization in late 2025, as new supply fell to its lowest quarterly level since 2012 and demand continued to improve. National vacancy ended the year at 20.5%, rising just 30 bps year over year, the smallest increase in more than five years, while Class A vacancy declined modestly. Vacancy fell across half of U.S. markets, with declines exceeding 100 bps in 17 markets, including Midtown Manhattan, Phoenix, San Jose, and Tampa. Sublease availability declined 20% from its 2024 peak, with notable reductions in San Francisco, Dallas, Austin, Atlanta, and Phoenix, supporting firmer occupancy as construction and inventory continue to contract.
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Outlook
Outlook for the office market has improved following clear momentum in the second half of 2025, as leasing activity strengthened and vacancy moved closer to a peak. Occupier demand is accelerating, particularly for higher-quality assets, driving positive absorption and continued reduction in sublease availability. While capital markets are gradually reopening, elevated construction costs, labor constraints, and policy uncertainty continue to suppress new development, contributing to a shrinking office inventory as conversions and demolitions outpace deliveries. With construction at historic lows, early signs of a development inflection are emerging as select developers position for a tighter supply environment.
