Office Market Holds Steady, But Vacancy Still a Drag

Flight-to-quality continues to drive demand, even as overall vacancy remains elevated.

Jordan B.
September 24, 2025

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Good morning. The U.S. office market is slowly finding its footing, but high vacancies and cautious construction starts reveal an industry still in transition.

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🚨Join us for a 30-minute data-packed live webinar of our latest Fear and Greed Survey. We’ll break down what’s driving investor sentiment across Multifamily, Industrial, Retail, and Office, including the latest in capital market conditions.

Market Snapshot

S&P 500

GSPC

6,664.36

Pct Chg:
+0.48%

FTSE NAREIT

FNER

772.48

Pct Chg:
+0.12%

10Y Treasury

TNX

4.129%

Pct Chg:
-0.01

SOFR

30-DAY AVERAGE

4.14%

Pct Chg:
-0.00

*Data as of 09/19/2025 market close.

Office Outlook

Office Market Holds Steady, But Vacancy Still a Drag

The national office vacancy rate dipped slightly to 18.7% in August, though trophy assets remain the main draw in an otherwise uneven market.

Hybrid is the new normal: Two-thirds of U.S. firms offer flexible attendance, leaving physical office use stuck in the 50–55% range. While NYC has seen its strongest leasing demand in five years, most markets remain sluggish, with top-tier buildings carrying the load.

Rents & vacancy: Office rents averaged $32.63/SF in August, down 0.4% from last year, while vacancy eased to 18.7%. Seattle, Austin, and San Francisco remain oversupplied with vacancies above 25%, but Manhattan stands apart with just 13.6% vacancy and rents near $68/SF.

Sales activity: Sales hit nearly $33B YTD, averaging $190/SF—well below 2019’s highs. Manhattan led with nearly $5B in deals, trailed by the Bay Area and D.C. A standout transaction came in Dallas, where Cousins Properties paid $218M for The Link at Uptown, reflecting strong demand for top-tier assets.

Supply pipeline: Nationally, just over 40M SF is under construction, representing less than 1% of stock. Boston leads the charge with 5.6M SF, while Manhattan’s 3.35M SF pipeline includes BXP’s 343 Madison tower. Dallas and Austin follow with 2.7M and 2.4M SF, respectively.

Regional highlights:

West: San Francisco tops asking rents ($64 PSF) but sits at 26% vacancy. Bay Area leads in sale prices ($378 PSF).
Midwest: Affordable but weak on sales. Chicago led volume at $826M, though deals averaged just $60 PSF.
South: Washington, D.C. ($3.1B in sales) and Dallas ($1.5B) dominated transactions. Miami is the priciest lease market in the South at nearly $56 PSF.
Northeast: Manhattan leads nationally in both sales ($5B) and pricing ($528 PSF). Boston holds the largest construction pipeline at 5.6M SF.

Employment trends: National office-using employment ticked up just 0.1% YoY, with steep declines in Northern California hubs. San Diego, San Francisco, and the Bay Area each saw office-related employment fall more than 2% as tech-sector cutbacks ripple through.

➥ THE TAKEAWAY

Bigger picture: The office market continues to recalibrate around a simple truth: tenants and investors want quality over quantity. With hybrid work entrenched, vacancy won’t return to pre-2020 norms anytime soon, but high-amenity, well-located assets are still commanding rents, leasing demand, and capital.

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✍️ Editor’s Picks

Enroll today: Learn directly from Wharton faculty and leaders at Blackstone, KKR, and Ares + work through real estate deal case studies with Wall Street Prep faculty. Save $300 with code CREDAILY. Starts Oct. 6. (sponsored)
Loan diet: Mortgage REITs cut loan volumes by 18% since 2022, shifting focus from office to multifamily and industrial assets.
Campus expansion: Vanderbilt University is launching an ambitious national expansion, building new campuses in New York and Florida, with San Francisco next.
Land grab: Nuveen has launched a $3B nonlisted farmland REIT, betting on rising global food demand, limited land supply, and steady farmland value growth.
Haute hub: Beverly Hills is going big with One Beverly Hills, a $10B ultra-luxury development adding an Aman hotel, branded condos, and high-end retail to one of the nation’s tightest shopping corridors.
Debt drag: Despite the Fed’s rate cut, slowing wage growth, rising household debt, and stubborn inflation are squeezing consumer spending.

🏘️ MULTIFAMILY

Pricing truce: RealPage struck its first state-level deal with Nevada, agreeing to limit rental data use and face five years of oversight.
Cap rate clarity: Multifamily cap rates have stabilized as rent growth bottoms out, signaling a potential market upswing heading into 2026.
Auction bound: More than 5,000 rent-stabilized NYC apartments tied to Joel Wiener’s Pinnacle Group are headed for a bankruptcy auction or refinancing deal, as the landlord faces $564 million in debt.
Dwight deploys: Dwight Securities raised capital to offer up to $1B in multifamily construction loans as banks retreat from the space.
Mag Mile: Amli Residential has proposed a 56-story, 498-unit tower on Chicago’s Mag Mile, a project that could replace the iconic Nike Town retail building.
Buyer bait: San Francisco developers are luring buyers with perks like free HOA dues, rate buy-downs, and design credits as condo sales lag behind costs and competition.

🏭 Industrial

Data domination: Nvidia will invest $100B in OpenAI to build 10GW of new data centers, signaling massive growth in AI infrastructure and the early stages of a global data center boom.
Steady surge: Mid-sized industrial leases (50K–100K SF) are driving stable growth in the sector, as large occupiers stay quiet and manufacturing demand steadily rises.
Strategy shift: Sunwest Real Estate Group made its first industrial acquisition—a 36K SF shallow-bay warehouse in Arlington, TX—marking a strategic shift from office to industrial.
Mega build: Uncommon Developers has begun pre-leasing a 1.1M SF distribution center in Apple Valley, CA—one of just four industrial projects set to deliver in the Inland Empire over the next year.
Warehouse women: Cushman & Wakefield’s Amanda Eastwick has launched WILD, a new network to expand education and connections for women in industrial real estate.

🏬 RETAIL

Convenience counts: Nuveen sees millennial-driven “convenience culture” reshaping retail, fueling demand for suburban, service-rich centers with strong digital integration.
Tenant turnaround: PREIT secured a $56M loan for Dartmouth Mall after boosting performance with new discount retail tenants, lowering its debt costs as part of a broader $286M refinancing effort.
Retail bet: A JV led by former WeWork CEO Sandeep Mathrani has acquired the struggling Galleria at Fort Lauderdale, with plans to redevelop the 1980s-era mall.
Destination build: Two major mixed-use projects on Dallas’ Knox-Henderson corridor aim to transform it into a national luxury retail destination.

🏢 OFFICE

Core confidence: Manhattan landlords secured over $4B in August financing, led by Durst’s $1.3B Times Square refi, as lenders show renewed appetite for prime office assets.
Trophy target: SL Green CEO Marc Holliday says the firm is eyeing the Chrysler Building "at the right price," following RFR’s eviction and ongoing fallout from missed rent and ground lease drama.
Transit shift: Amtrak will relocate its headquarters back to Union Station under a federal takeover plan, as the DOT reclaims control and reevaluates the station’s $8.8B redevelopment.
Class A: SL Green and PGIM locked in a $1.4B CMBS refinancing for 11 Madison Avenue, signaling lender confidence in top-tier NYC office assets.
Luxury surrender: Michael Shvo gave up his Miami Beach site in a $28M deed-in-lieu of foreclosure, as zoning shifts and debt pressure shelved plans for a luxury office project.

🏨 HOSPITALITY

Refi relief: Ashford Hospitality Trust refinanced a $218M loan on its Renaissance Nashville Hotel, locking in interest-only payments through 2030 and saving millions in annual interest expenses.
Hollywood boost: Nimes Real Estate secured $55M in bridge financing from Peachtree Group to recapitalize Hotel Amarano in Burbank, betting on rising studio demand.