- Office market stabilizes as demand concentrates in top US regions.
- National vacancy rate remains steady at 20.2%, smallest annual rise since 2020.
- Sublease space down 25% from peak, with 16M SF removed in past year.
- New office construction at historic lows, with pipeline at just 0.3% of inventory.
Stabilization in Leading Office Markets
IREI reports that the US office market is showing new signs of stabilization, driven by stronger demand in key cities and a sharp decline in new supply. According to Cushman & Wakefield, major markets like Midtown Manhattan, Dallas, and San Francisco are posting substantial absorption gains, while more markets are recording stable or declining vacancies.
In the past year, 57 office markets have registered positive absorption, up from 33 the year before, indicating growing momentum. Midtown Manhattan led the country with 8.5M SF absorbed, while markets like Orange County and Dallas also posted gains over 2M SF.
Sublease Availability Continues to Drop
One key shift in the office market is declining sublease availability. Total sublease space has dropped 25% from its Q1 2024 peak. That equals a reduction of more than 16M SF over four quarters. Markets like San Francisco, Midtown Manhattan, and Dallas saw the largest annual declines. Each market reduced sublease space by more than 1M SF. This drop signals tenants are committing to longer leases. In major markets, stronger leasing momentum has also helped absorb excess space and tighten availability.
This reduction in excess space signals tenants are making longer-term commitments, further stabilizing the market.
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Supply Pipeline Shrinks Further
The supply of new office space is at its lowest level since 2000. New completions dropped 40% year-over-year in Q1, and current construction represents just 0.3% of total US office inventory. Total office stock has shrunk 0.7% over the last five quarters, equating to a decline of 38M SF since late 2024, driven by conversions and demolitions.
Market Performance Diverges by Region
While national trends show stabilization, performance diverges at the market level. Vacancy rates are declining in nearly half the US tracked office markets, but overall softness is now concentrated in a small number of weaker regions. As the construction pipeline remains limited, occupiers may need to seek creative solutions for space as the cycle shifts toward a more selective recovery.
