The U.S. office market is continuing to face challenges in early 2025, with the rise of remote and hybrid work models reshaping the way we think about office space. After a rocky 2024, office sale prices took another hit, dropping 11%, and have plummeted by 37% since 2019, according to Commercial Edge.
With vacancies climbing and construction projects slowing to a crawl, the office marketโs future is still uncertain. However, the picture isnโt the same everywhere โ some areas are seeing a burst of demand, while others are feeling the sting of devalued assets.ย
Itโs a market of contrasts, and how it adapts in 2025 could signal where itโs headed in the next decade.
Suburban vs. Urban Office Space Trends
Suburban office buildings saw a 15% price drop, while properties in urban submarkets (areas within city centers but outside commercial business districts) rose by 7%. Premium properties in sought-after locations, particularly in major cities, are still attracting strong demand.
โโDiscounted Office Sales on the Rise
In 2024, nearly 600 office buildings were sold at a loss, a significant increase from 386 discounted sales in 2023. Many of these properties were sold at discounts exceeding 20%, and some were sold at more than half their previous value.ย
For instance, a building in Manhattan at 135 West 50th Street was sold for $8.5 million, a staggering 97% drop from its 2006 sale price of $332 million.
Despite these challenges, certain office sectors remain resilient. For example, office properties in Florida continue to boast some of the lowest vacancy rates in the country, while other major markets saw significant vacancy increases. Austin, for instance, had a 690 basis-point rise in vacancy rates, reaching 27.9% by January 2025.
Decline in Office Construction
Office construction also slowed in 2024, with just 9.1 million square feet of new space starting, a sharp decline of 67% from the previous year. The total office space under construction by the end of 2024 was 50.8 million square feet, a small fraction of the total office stock. This decline in new developments reflects a broader trend of shrinking office demand and increased difficulty securing financing.
Sales Volume and Price Trends Across Markets
Sales volume for office properties in 2024 amounted to $41 billion, a slight increase from the previous year, but still far below pre-pandemic levels.ย
While office properties in cities like Manhattan, Miami, and Austin saw high sale prices, many areas in the Midwest, like Chicago and Detroit, recorded the lowest average sale prices, under $100 per square foot.
The national office vacancy rate stood at 19.7% in January 2025, reflecting a continuing trend of rising vacancies driven by remote work policies.ย
Some markets saw particularly sharp increases, such as Austin, the Bay Area, and San Francisco.
Office-Using Employment Declines in 2025
Office-using employment also experienced declines in early 2025, particularly in sectors like Professional and Business Services, which lost 11,000 jobs in January 2025.ย
The Financial Activities and Information sectors saw positive growth, with 7,000 and 2,000 job increases, respectively. Overall, office-using employment shrank by 0.1% year-over-year, with a total loss of 35,000 jobs.
As the office market continues to adjust to new working dynamics and shifting economic conditions, industry experts are watching closely for signs of stabilization or further decline.
