Office Recovery Strengthens As Vacancy Drops

Office recovery strengthens with rising demand, falling vacancy, and record-low construction projected through 2026 across major US markets.

December 3, 2025

Valerija I.

Office vacancy dropped to 16.4% in Q3 2025 after six straight quarters of positive absorption totaling 127M SF.
Utilization has rebounded to 70% of pre-pandemic levels, with New York and Miami leading the recovery.
New office construction is projected to hit a 25-year low in 2026, tightening future supply.
Private investors and owner-users are increasing their share of acquisitions, supported by rising cap rates averaging 7.6%.

Key Takeaways

Recovery Gains Ground & Demand Shifts

Momentum is building in the office sector as companies adapt to hybrid work. Over six quarters, 127M SF was absorbed, lowering national office vacancy from 17.2% to 16.4% by Q3 2025, reports GlobeSt. Tenants prefer newer suburban offices and amenity-rich Class A towers in major markets like NYC, Miami-Dade, DC, and Dallas. Smaller metros such as Riverside–San Bernardino, Charleston, and Knoxville are also outperforming, posting some of the lowest vacancy rates nationwide.

Utilization Trends & Labor Dynamics

Office attendance, which plunged during the pandemic, rebounded to about 70% of pre-2020 levels by October 2025. Cities like New York and Miami are nearing full recovery, while lagging markets such as Denver, Boston, and San Francisco are beginning to show year-over-year improvement. A shifting labor market may also boost in-office work. According to Marcus & Millichap, companies—particularly in finance and tech—have been hesitant to enforce return-to-office mandates due to a tight labor market. However, if job creation slows in 2026 and unemployment rises, office attendance may increase further.

Construction Slowdown Tightens Supply

New development is falling sharply, with office construction expected to hit a 25-year low in 2026. This slowdown, coupled with steady absorption, is projected to push vacancy down to 15.9% by year-end. The constrained pipeline could give landlords more pricing power in select markets, especially for well-located, high-quality buildings.

Investment Outlook: Risk Meets Opportunity

Despite lingering uncertainty, office investment activity is heating up. Private buyers now account for nearly half of all acquisitions—up from a historical average of 30%—while owner-users have more than doubled their share of deals to 13%. Rising cap rates, which have increased 90 basis points since 2022 to an average of 7.6%, are drawing interest from investors who see long-term potential. Marcus & Millichap’s John Chang notes that pricing and cap rate spreads remain wide, creating selective opportunities for experienced investors who can navigate property-specific risks.