Since the pandemic, the office sector has been experiencing vacancy and absorption struggles. The story was somewhat the same in Q2 2025. However, reports indicate that demand is slightly increasing while the construction pipeline is shrinking.
Cushman & Wakefield’s US Market Beat report explained that negative absorption continued; however, the before-quarter rolling average is continuing to improve. In fact, the report said that 35 markets reported positive absorption over the past four quarters.
JLL’s Office Market Dynamics report also noted that “without the influence of large-scale federal lease terminations elevating downsizing in Q2, net absorption continued to stabilize, with just over 2 million square feet of occupancy loss in Q2.”
The US Office Real Estate Market report released by Plante Moran also allowed that leasing momentum is building. However, the overall recovery is uneven, with the average lease size approximately 15% smaller than before the pandemic.
Furthermore, higher levels of leasing can be found in smaller tenants that are upgrading their space. At the same time, larger firms are more cautious in their leasing decisions, the Plante Moran analysts pointed out. Additionally, return-to-office policies are also pushing demand for space.
Of course, not all office products benefited. Most of the reports said that Class A, newer trophy buildings, perform the best.
What seems to be helping is that less space is being delivered. All reports said that fewer office buildings were under construction than before the pandemic. Plante Moran analysts added that supply growth hit a decade low in 2024.
However, two of the reports indicated that leasing activity plateaued in the second quarter. Lee & Associates’ North America Market Report said that while there had been some indications of tenant growth improvement, things were sluggish over the past three months. Additionally, “typical requirements continue to trend toward smaller spaces, and many markets report that space consolidations are not yet over,” Lee & Associates analysts pointed out.
In terms of the outlook, the reports were generally positive. Cushman & Wakefield analysts noted that more occupiers have been encouraging employees to show up at the worksite, which could increase demand from office-centric industries. Furthermore, because of the growing demand for space-as-a-service, “well-designed buildings that offer meaningful experiences to employees in high-quality markets will be more in demand,” Cushman & Wakefield analysts said. JLL analysts added that leasing recovery will pick up steam in the second half of 2025 while “strong signals remain that office demand will bounce back quickly if macroeconomic headwinds abate.”
The JLL analysts went on to say that a decline in the availability of high-end space could likely mean higher renewal rates and eventually expanded asking rent growth, especially in premium, Class A buildings.
#Office #Continues #Trudging #Positive #Indicators #Underway