- The US office vacancy rate stood at 19.4% in May 2025, with more than 149M SF proposed for residential or mixed-use conversion.
- Manhattan and San Francisco are rolling out ambitious city-led programs to streamline office-to-residential transitions amid differing levels of conversion feasibility.
- Despite high-profile tech lease activity, Northern California cities like San Francisco and the Bay Area continue to see some of the steepest vacancy spikes in the nation.
A Nation At A Crossroads
America’s office sector is undergoing a structural transformation as remote work and declining demand continue to leave central business districts with record-high vacancy rates. As of May, the national vacancy rate reached 19.4%, up 160 basis points from the prior year, reports Yardi Matrix.
Developers and municipalities are increasingly turning toward office-to-residential conversions as a potential solution. Since 2022, about 125M SF of office space has been proposed for conversion, with 2024 alone accounting for 48M SF of those proposals.
Manhattan And San Francisco
Manhattan is one of the few major markets with relatively lower office vacancies—but that hasn’t slowed the push for conversions. The city’s Office Conversion Accelerator program is already helping developers navigate zoning and permitting hurdles. One major project already underway: the conversion of 770K SF at 222 Broadway into nearly 800 apartments and commercial space, due in 2027.
In contrast, San Francisco faces one of the nation’s highest office vacancy rates at 28.4%, a 330-basis-point jump year-over-year. Though the city’s Commercial to Residential Adaptive Reuse Program offers tax waivers and fee eliminations, only about 1M SF of office space has been proposed for conversion. However, projects like the 120-unit Humboldt Residences may offer a preview of more to come.
Leasing And Pricing Trends
The national average full-service listing rate was $33.15 PSF in May—up 4.8% year-over-year, despite a month-over-month dip. Miami, San Francisco, and Manhattan continue to command the highest rates, with San Francisco’s top asking rents hitting $209 PSF for Class A properties.
The Job Market’s Mixed Signals
Job growth in office-using sectors has stagnated. Over the past year, those sectors grew by only 1K jobs nationwide. Notably, Charlotte stands out as a growth leader, posting a 3.2% increase in office-using jobs year-over-year—more than double that of any other major market.
Development Slows To A Crawl
Only 4.2M SF of new office space broke ground in the first five months of 2025, a steep decline from the 11.3M SF started in the same period a year ago. Boston’s once-booming life sciences sector has slowed dramatically, with just one new project breaking ground over the past 12 months.
Why It Matters
The surge in office conversions reflects a broader reckoning in the commercial real estate sector. With tenants downsizing and demand softening, cities and owners are being forced to rethink how to use their aging office stock. Incentives, feasibility indexes, and zoning accelerators are becoming central to this strategy.
What’s Next
As economic pressures and remote work trends persist, office-to-residential conversions are likely to accelerate in the most challenged markets. Yet, feasibility remains a barrier—one that cities like New York and San Francisco are now actively trying to overcome. Expect more cities to follow suit, reshaping downtown skylines for the post-pandemic era.
