The U.S. office real estate market continues its gradual recovery. Q4 2024 saw the most stable office absorption in over two years, with nearly half of U.S. markets showing growth. Sublease availability declined for the third straight quarter, and new office construction slowed, easing supply pressures. In 2025, demand is expected to shift from contraction to expansion, with leasing volume rising and high-quality office spaces remaining in demand. However, challenges like weak job growth and high vacancies persist.
Key Takeaways in Q4
Q4 demand remained negative but showed signs of recovery, posting the strongest absorption since rate hikes began. Nearly half of U.S. markets saw positive growth, while vacancy rose just 20 bps QOQ, the smallest increase in 2.5 years.
Tenant demand remains focused on high-quality office space, but with new construction dropping below 30 msf, occupiers are expanding their search beyond trophy assets. As a result, Q4 2024 saw the most stable demand for non-trophy Class A space since the pandemic.
Sublease availability fell 3.8% from early 2024 highs, marking three consecutive quarters of decline. Growing occupier confidence suggests overall vacancy may soon peak.
Office Absorption Still Negative but Shows Signs of Stability
Q4 2024 marked the 12th consecutive quarter of negative office absorption, though at -5.8 msf, it was the most stable quarter in over two years, improving from the -17.0 msf average of the previous three quarters. 44 of 93 markets saw positive absorption, led by San Jose, Nashville, and Brooklyn.
Class A office demand held steady in Q4 (-61,000 sf), improving in two-thirds of markets. The South led absorption, adding 2.0 msf, with Nashville, Charlotte, and Austin among the top performers. Year-end vacancy hit 20.9%, rising 160 bps YOY, but the smallest QOQ increase in 2.5 years. Nearly half of U.S. markets, including San Francisco, Austin, and Midtown Manhattan, saw flat or declining vacancy.
Sublease Availability Shrinks, Signaling Market Stabilization
The sublease market tightened for the third straight quarter, a sign that overall vacancy may be peaking. National sublease availability fell 2.6% QOQ to 142.2 msf, down 3.8% from its Q1 2024 peak. More than half of U.S. markets saw QOQ and YOY declines, with the largest drops in New York and San Francisco, indicating growing demand in major cities.
Office Construction Slows, Easing Supply Pressure
New office deliveries totaled 32.6 msf in 2024, steady from 2023 but well below pre-pandemic levels. Construction activity has slowed sharply, with the pipeline shrinking 50% YOY to 29.3 msf, marking the lowest level since 2011. Now at just 0.7% of total inventory, reduced development will ease supply pressure and support demand for higher-quality office space.
2025 Outlook
The U.S. office market is projected to stabilize in 2025. Occupiers will shift from contraction to expansion, driving space absorption. Slower new supply and lower interest rates create a positive outlook, though challenges like weak job growth, sublease space, and high vacancies persist.
A strong tenant pipeline is expected to drive a 5% increase in leasing volume, with smaller tenants (10,000–20,000 sq. ft.) making up over half of total demand. Relocating tenants will favor top-tier buildings in prime locations with premium amenities. As availability tightens, demand will shift to the next tier of properties.
The gap between high-quality and lower-tier office assets is expected to widen as prime mixed-use locations continue to attract tenants, particularly Class A occupiers looking to upgrade. Meanwhile, cost-conscious sectors like government, healthcare, and education will drive demand for Class B and C space, while commodity buildings in office-heavy districts face higher vacancy risks. With 175 million sq. ft. of discounted sublease space on the market, landlords of lower-tier properties will need to cut rents to stay competitive.
As new construction slows, prime office availability will shrink, with vacancy in top-tier buildings projected to return to pre-pandemic levels (8.2%) by 2027. Scarcity in key markets will give prime landlords more leverage, pushing rents higher and making top-tier space harder to secure. Tenants will also be more cautious in assessing landlords' financial stability before committing to leases.
Falling interest rates, economic stability, deregulation, and record-high office employment will boost corporate confidence and office demand in 2025. Office attendance rates will rise slightly, while AIs agentic wave of digital employees helps fill roles in sectors facing labor shortages, ensuring continued productivity despite hiring challenges.
ServiceTitan customer? Learn how these trends are affecting your business performance and compare to others like you by downloading your personalized Benchmark Report.
Not yet a ServiceTitan customer? Request a demo and ask about the Benchmark Report.
