The U.S. office sector continues to adjust to lower demand, with new construction falling to its lowest share of total stock in years, according to a new report by Commercial Cafe. As of early December, roughly 32 million square feet of office space remained under construction nationwide—about 44% less than a year earlier—reflecting how difficult it has become to justify new projects amid high vacancy and uneven occupancy.
National office vacancy stood at 18.5% in November, down modestly from last year but still historically elevated. Asking rents averaged $32.77 per square foot, essentially flat year over year, signaling a market that has stabilized but not fully recovered.
Coworking expands as traditional supply contracts
While traditional office development slows, coworking continues to grow. Roughly 22 million square feet of coworking space opened in 2025, marking a year-over-year increase of about 16% and pushing coworking’s share of total office inventory above 2%.
The expansion reflects demand for flexible space as hybrid work becomes entrenched. With most companies now offering some degree of location flexibility, coworking is increasingly filling the gap between fully remote work and long-term office leases, particularly for firms seeking agility without committing to large footprints.
Winners and laggards emerge across major markets
Office recovery remains highly localized. Manhattan stands out for both relatively low vacancy and renewed development momentum, while San Francisco and the broader Bay Area saw year-over-year gains in demand, driven in part by activity tied to artificial intelligence and technology firms.
By contrast, many markets continue to struggle with tenant consolidation. In Minneapolis–St. Paul, for example, the departure of a major corporate tenant from a large downtown headquarters materially pushed vacancy higher, underscoring how a single move can reshape local fundamentals.
Construction narrows to a handful of metros
New office development is increasingly concentrated. Boston, Manhattan, and Dallas were the only U.S. markets with more than 2 million square feet under construction in November. Together, Boston and Manhattan alone accounted for more than one-fifth of all office space being built nationally.
Outside a small group of coastal and Sun Belt cities, most markets now have minimal new supply underway, reinforcing a shift from expansion to absorption and repositioning.
Pricing splits along regional lines
Leasing costs continue to vary sharply by region. Western and Northeastern markets posted the highest asking rents, led by Manhattan and San Francisco, while Midwestern and many Southern metros remained among the most affordable. Miami stood out in the South for both high rents and tight vacancy, while Texas markets carried much of the region’s remaining development activity.
Sales activity also reflected this divide. Manhattan led the nation with more than $7 billion in office transactions year to date, while pricing in markets such as Chicago continued a multiyear downward trend.
Employment remains steady but subdued
Office-using employment showed little momentum late in the year. Private-sector data indicated modest year-over-year job growth, offset by recent monthly declines in professional, business, and information services. While concerns about AI-driven job losses persist, surveys suggest far fewer firms have actually reduced headcount due to automation than previously anticipated, with many opting instead for retraining.
What it means for the office sector
With new office construction shrinking and demand uneven, the office market is entering a period defined less by growth and more by reallocation. Coworking’s continued expansion highlights how flexibility is becoming a structural feature of office demand—not a temporary response to remote work.
As vacancy gradually eases and supply remains constrained, markets with strong fundamentals and adaptable space offerings appear best positioned to capture the next phase of office recovery.
