Central business districts (CBDs) across the U.S. remain under pressure as office vacancy rates stay high and listing prices continue to decline. New federal office leasing policies and ongoing changes in workplace patterns are compounding the challenges downtown areas face in their efforts to regain stability after the pandemic, according to Commercial Edge.Â
The May 2025 Office Market Report shows CBD vacancy currently stands at 19.2%, significantly higher than before 2020. While slightly lower than the vacancy levels in other urban areas (20.1%) and suburban zones (19.8%), downtown properties have experienced the steepest rent reductions.Â
Asking rents in these districts now average $38 per square foot, which is nearly 30% less than in early 2020. Suburban office rents, on the other hand, have grown slightly during the same period.
Federal Policy Reversal Deepens Downtown Leasing Woes
A recent policy reversal by the federal government removed earlier preferences for locating offices in CBDs. Agencies are now free to lease in less expensive areas, adding to the downward trend in demand for downtown office space.Â
This has contributed to a decline in construction activity, with less than 4 million square feet added to CBD inventory in 2024 — the lowest level in nearly a decade.
Office Values Slide as Investors Reprice CBD Assets
Investment activity has also cooled. Although certain properties are still generating strong occupancy and income, many downtown buildings are trading at large discounts.
A notable example includes the sale of a 30-story office tower in Chicago’s CBD for $63 million, a huge markdown from its $182 million sale price in 2018.Â
Nationally, the average office asking rent reached $33.34 per square foot in April, a slight increase compared to last year. Vacancy stood at 19.7%, showing little improvement.Â
Meanwhile, Boston has seen a steep rise in vacancy to 17% — a jump linked to weakening demand in the life sciences sector, which had fueled a construction boom in previous years.
Construction Starts Fall as Markets React to Softening Demand
Office construction remains subdued, with just 2.8 million square feet breaking ground in the first four months of 2025. Austin, once a hotbed of office development, has seen activity fall off dramatically. After adding nearly 9 million square feet between 2020 and 2022, the city has only 1.3 million since early 2023.
Vacancy and Investment Trends Vary Sharply by Region
The Commercial Edge May report also showed that nationwide office sales totaled $14.2 billion through April, with average prices falling to $191 per square foot. The Bay Area, once a high-value market, has seen its average sales price fall from $515 in 2021 to $254 in 2025. Although AI-related deals are providing some momentum, they have yet to fully counterbalance the downturn that began with the tech industry’s slowdown.
The West continues to post some of the highest office lease rates in the nation. San Francisco remains the most expensive market, with rents over $64 per square foot. Other cities like San Diego, Seattle, and Los Angeles also outperform the national average. At the same time, some Western cities are dealing with rising vacancy, particularly Portland and San Francisco.
In the Midwest, cities such as Detroit and Chicago remain more affordable but are grappling with high vacancy and limited new development. Chicago has maintained relatively strong investor interest, but sale prices and rents remain well below national levels. The Twin Cities was the only market in the region to record new construction starts this year.
Southern markets show mixed performance. Washington, D.C., leads the region in sale volume and pricing, while Austin faces one of the highest vacancy rates in the nation at nearly 29%. Miami and Tampa, by contrast, have kept vacancy in check and maintained higher asking rents.
Northeastern cities generally report stronger occupancy, with Manhattan leading the region in both sales volume and pricing. However, all major Northeastern markets saw asking rents decline over the past year. Boston continues to lead the nation in construction activity, though vacancy there is rising due to overbuilding in life sciences.
The office job market posted a modest gain in April, with 31,000 jobs added. Yet, year-over-year growth remains weak, and some cities still have not returned to pre-pandemic employment levels. For example, Seattle’s office workforce is still below its 2022 peak, despite posting one of the better growth rates among large metros.
Overall, downtown office markets are dealing with a difficult adjustment period. While a few locations and property types continue to perform well, many others are contending with lingering vacancies, falling rents, and reduced construction activity. The path forward remains uneven across regions and sectors.
