Tenant demand in North American office markets showed signs of life in Q3 2025, reversing previous declines as companies cautiously returned to physical workspaces, according to Lee & Associates’ Q3 2025 Market Report. The U.S. led the rebound, posting 12 million square feet of net absorption — enough to lower the national vacancy rate slightly to 14.1% after hitting a record high earlier in the year.
Still, recovery remains patchy. Total net growth through Q3 was negative 4.8 million square feet, marking the weakest year-to-date total since pandemic lockdowns. While the U.S. economy is showing some strength — thanks in part to consumer spending and rising investment in AI-related hardware — only about half of the top 80 metro areas have posted positive occupancy gains over the past year.
Big Winners and Losers in Key Metro Areas
New York City leads the pack with six consecutive quarters of growth and 7.9 million square feet absorbed, followed by Dallas–Fort Worth (3.6 million), Phoenix (1.5 million), Charlotte (1.3 million), and Houston (844,000). San Francisco also turned positive with 370,000 square feet of absorption after a prolonged slump.
Other markets continue to struggle. Chicago recorded the deepest losses at nearly 4 million square feet of negative absorption over the past 12 months, followed by Washington D.C. (3.6 million), Boston (2.8 million), Denver (2.2 million), and Los Angeles (2.1 million).
Labor Market and Supply Headwinds
Weighing on the recovery is a cooling job market, especially in knowledge-based sectors like tech, media, and professional services, where payrolls remain 2% below their 2023 peak.
At the same time, office supply growth has slowed to a crawl. Just over 25 million square feet were completed in the U.S. through Q3, with the net increase shrinking to 8 million after demolitions. A further 9 million square feet is expected in Q4. That’s far below the pre-pandemic average of 68 million square feet annually.
Canadian Markets Show Mixed Signals
In Canada, office demand showed modest gains in Q3, with 834,000 square feet of net absorption. However, year-to-date numbers dipped into negative territory at nearly 3.9 million square feet lost.Â
The contraction follows three years of steady growth and reflects growing economic caution, especially among businesses exposed to manufacturing and trade-related job losses.
