The U.S. office market is showing early signs of a pivot in 2025. Leasing momentum is stabilizing, vacancy increases are slowing, and sublease space is contracting. Despite ongoing macroeconomic uncertainty and shifting federal policy, national absorption trends are improving, and key markets like San Jose, Manhattan, and Austin continue to outperform. From construction pipelines to investor sentiment, the data points to a sector gradually regaining its footing.
Key Takeaways
Demand Stabilizing: Net absorption was negative in Q1, but the 4-quarter total saw its best performance in two years, improving 30% QOQ and 48% YOY. One-third of markets posted gains.
Quality Drives Performance: Over half of office buildings have single-digit vacancy. Class A space continues to outperform, with absorption up 36% QOQ and 55% YOY.
Supply Pressures Easing: Sublease space has declined for four straight quarters, down 9.5% YOY. New construction is at its lowest in 12 years, with the pipeline 80% below 2020 levels.
Office Demand Holds Strong as Pro-Growth Policies Take Shape
U.S. office demand remained resilient in Q1 2025, with fundamentals continuing to stabilize. While net absorption was slightly negative, the 4-quarter rolling total improved 30% quarter-over-quarter and 48% year-over-year. A third of U.S. markets posted positive office absorption, led by San Jose, Midtown Manhattan, Austin, Tampa, and Tulsa. Gains also appeared in Phoenix, Baltimore, Kansas City, and San Diego, with broader strength across Texas, the Southeast, Midwest, and Western markets—highlighting selective growth and steady tenant demand.
Office Vacancy Slows as Supply Pressure Eases
While national office vacancy edged up to 20.8% in Q1 2025, the pace of increase is slowing, with 30 markets seeing flat or declining rates. Sublease inventory has dropped for four straight quarters—down 9.5% year-over-year—and is declining in two-thirds of markets, signaling improving demand. Meanwhile, the construction pipeline has shrunk to its lowest level in over a decade, reducing future supply pressures. However, lingering economic and policy uncertainty could weigh on leasing decisions, with early signs of consumer softening, rising layoffs, and declining business confidence suggesting potential headwinds ahead.
Bottom Line:
The office market continues to stabilize, supported by minimal new construction, declining sublease inventory, and early-cycle workforce adjustments. As more companies recommit to in-office work, demand for high-quality space is firming—even in markets with elevated vacancy. Recovery will be uneven and asset-specific, but long-term trends like population growth in gateway cities provide meaningful tailwinds.
