After taking the biggest blows, large office markets across the United States are emerging from their pandemic-era troughs to forge their own distinct paths to recovery.
A mounting return-to-office push, barren construction pipeline and resurging demand among some of the country's largest corporate tenants is helping to backfill some of the losses cities such as New York and San Francisco endured over the past half decade. While the national vacancy rate remains at a record high, office stakeholders are pointing to a smattering of emerging signals that the market has bottomed out and — in major gateway cities — is poised for a rebound.
"We have clearly reached a point of stabilization that has helped the path to recovery emerge," Jessica Morin, CBRE’s U.S. director of office research, told CoStar News. "Tenants who were kicking the can down the road now understand their space requirements, which means there are a good amount of tenants hunting for space and the pipeline for new leasing activity is growing. That stabilization is very granular now, but there is a shift everyone is feeling."
That recovery is largely focused on the highest end of the office market, or properties able to tout the best locations, the best amenities and the best environments. It's a healing process that has some experts looking at the state of the office market on a block-by-block basis rather than a market-to-market one.
"There are different nuances as to why people want to be in a certain place, and we're having to balance that with the trends we're seeing," said Phil Mobley, CoStar Group's national director of market analytics. "What's interesting about New York, for example, is that there is a specific set of buildings that are filling up super quickly, while other less desirable locations are struggling. It's become more about micro-targeting locations."
Even though there are more specific pockets of recovery across the nation's leading office markets, there are some broad themes emerging that are forming a foundation for widespread stability.
While the national office vacancy rate remains stubbornly high at 14%, tenants across roughly half of the country's 50 largest markets have helped push demand back into positive territory after years of record downsizing and move-outs. Top-tier cities such as New York are leading the rebound, with other larger markets including San Francisco; Austin, Texas; Washington, D.C.; and Miami following along specific, but similar paths.
Here's a look at how they all stack up.
New York City
Current vacancy rate: 13.5%
Peak vacancy rate: 14% in first quarter 2024
Sublet availability: 22.4 million square feet, or about 15.3% of total availability
Leasing momentum: Tenants signed more than 27 million square feet in 2024, representing a 16% spike compared to the prior year
High-profile investments: Along with a string of blockbuster deals signed by companies such as Amazon, Ropes & Gray and Bloomberg, among others, developers are also dusting off a handful of office development projects aimed at capitalizing on the growing demand for top-tier space. A joint venture between RXR Realty and TF Cornerstone is trying to secure financing for its $6.5 billion 175 Park development, which would include about 2.1 million square feet of office space and, if constructed, would be one of the tallest skyscrapers around the world.
Biggest drivers: Market stakeholders claim New York is at the forefront of the national office market's slow-but-gradual turnaround in large part due to its high concentration of financial and legal services tenants, many of which have returned to full-time office use. What's more, the region's 9 million-square-foot construction pipeline is less than half what it was prior to the pandemic, creating a sense of urgency among companies competing for a dwindling amount of high-quality space.
What they say: "Business is good, really good, and getting better," Vornado Realty Trust CEO Steven Roth recently told analysts about the New York market trajectory. "The cost of a new build has more than doubled over the past few years, and new supply is frozen. There's a shortage of space, and we are unbelievably enthusiastic about the tightening of the market and the inventory we own."
Miami
Current vacancy rate: 8.6%
Peak vacancy rate: 9.7% in first quarter 2021
Sublet availability: 1.1 million square feet, or about 8.1% of total availability
Leasing momentum: Tenants have collectively signed nearly 5 million square feet of office deals over the past year, a slight decrease from its 2022 peak, but still positive in terms of companies agreeing to more space than they're offloading.
High-profile investments: The relocation and expansion boom in the early years of the pandemic has extended into 2025 with corporate giants such as JPMorgan Chase committing to more than doubling its office footprint in the Miami area as it ramps up its regional hiring plans. Apple and Amazon are also either on the hunt for or have recently signed office deals, helping to fuel ongoing demand for trophy space. Citadel, the $63 billion hedge fund that cemented Miami's rising status as a financial hub with its plans to relocate its base to the city from Chicago, is also preparing to break ground on its new headquarters tower in the city's Brickell neighborhood. The 54-story tower will span more than 1.7 million square feet and could begin construction sometime this year.
Biggest drivers: With its reputation for hosting a more business-friendly, corporate environment, Miami's office market has largely been able to withstand the turmoil wrought by the pandemic thanks to a slew of major relocations and expansions in the area. Companies across the financial, technology and professional services industries have buoyed leasing activity, making it possible to quickly fill the slew of recently constructed developments that have debuted over the past couple of years. That demand has also made it so that Miami office values have remained above 2019 levels, a considerable feat given the decline among office valuations across most major U.S. markets.
What they say: "Miami is still holding its own in terms of demand," CBRE's Morin said. "It has seen a short-term supply shock in terms of vacancy, but its newer buildings are still getting leased."
Washington, D.C.
Current vacancy rate: 16.8%
Peak vacancy rate: 17% in fourth quarter 2024
Sublet availability: 8.8 million square feet, or about 8.5% of total availability
Leasing momentum: Leasing volume throughout 2024 was at its highest level since the pandemic's outbreak half a decade ago. However, that volume is still about 25% below pre-pandemic levels, and uncertainty over federal employment and agencies' office use has clouded the outlook for the rest of the market, despite demands that workers return to the workplace.
High-profile investments: The legal industry has signed some of the District's largest office deals in recent years, with many looking to upgrade their space and — in some cases — expand their regional footprints. Freshfields earlier this year signed a deal to double its D.C. office space with a move to relocate its hub to Midtown Center. National landlord BXP also plans to break ground later this year on a 320,000-square-foot trophy office redevelopment three blocks from the White House. The project would replace the existing 12-story property at 725 12th St. NW the real estate investment trust acquired for $34 million in the final days of 2024.
Biggest drivers: A group of high-profile law and professional services firms have signed the city's largest leases in recent years, backfilling space left behind by some high-profile moveouts and shrinking the availability of high-quality office space. A mounting push to get employees back to in-office work has also helped bolster the sense that the D.C. office market recovery is beginning to take hold, with local executives pointing to the renewed foot traffic as the primary source for increasing office leasing activity.
What they say: "There has been a clear vibe shift over the past few months, we can feel it, as bigger groups of tenants are now finally ready and able to commit to office space," Kaitlyn Rausse, the senior vice president of leasing for D.C.-based office developer Carr Properties, recently told CoStar News. "Larger blocks of space are now being taken off the market, and many of these tenants are ready to commit to larger deals. All of that is trickling down and is having a domino effect on the rest of the market."
San Francisco
Current vacancy rate: 23.5%
Peak vacancy rate: Vacancy is expected to rise to 24% this year before higher leasing levels and reduced availability helps to bring it back down.
Sublet availability: 9.5 million square feet, or about 18.5% of total availability, is up for sublet, far less than the 37.2% share reported in mid 2020.
Leasing momentum: Leasing volume in the city has hit its highest levels over the past six months since 2022, helping to brighten the market's outlook as the frequency of downsizing and lease terminations among existing tenants has slowed considerably from its post-pandemic peak in 2023.
High-profile investments: Luxury real estate developer Michael Shvo's $1 billion overhaul of the city's iconic Transamerica Pyramid has meant the landlord is now able to command up to $300 per square foot, some of the highest office rents in the country. A group of locally based investment firms such as Presidio Bay Ventures, Flynn Holdings, Ellis Partners, among others have taken advantage of lower office valuations to scoop up properties at a discount and reposition them for what they bet will be an imminent rebound.
Biggest drivers: While the city's longstanding dependence upon the tech industry made it especially vulnerable to the impacts of the pandemic, surging demand throughout the artificial intelligence sector has sparked some of the largest office deals over the past several years and has created a pipeline of anticipated expansions expected to help bolster the city's stabilization. Last year alone, AI office leasing in the San Francisco Bay Area reached about 2.4 million square feet, more than doubling companies' existing footprints and not including the additional 1.4 million square feet of requirements still hunting for space in the region.
What they say: "There's a lot of enthusiasm about San Francisco starting to turn around," Colin Yasukochi, the executive director of CBRE's Tech Insights Center in San Francisco, told CoStar News. "The real estate-related metrics are lagging, and activity isn't quite where it was from the pre-pandemic days, but AI companies are really leading the growth charge and are having a substantial impact in terms of rising demand."
Austin
Current vacancy rate: 16.6%
Peak vacancy rate: A large pipeline of office developments is expected to push vacancy up to a peak of roughly 17.5% by 2026.
Sublet availability: About 4.5 million square feet of space, or about 16.1% of total availability, is up for sublet, far less than the 21.2% share reported in late 2023.
Leasing momentum: A slowdown in large move-outs and downsizings has meant tenants in the Austin area have signed on for more space than they offload, but demand has been unable to keep up with the amount of newly added space. What's more, tenants are signing significantly smaller deals, meaning newly constructed properties are expected to experience a far longer lease-up process than in years past.
High-profile investments: As part of its widespread bet on the national office market recovery, Cousins Properties in late 2024 closed on a nearly $522 million deal for Austin's iconic Sail Tower. The deal closed for the second-highest price ever paid for an office property in the market and was largely driven by a purchase price that was "well below replacement cost" and rents that are "significantly below market," according to an investor presentation on the acquisition.
Biggest drivers: Austin's enviable reputation for low unemployment, strong population growth and a solid base of corporate tenants has made it an attractive landing spot for companies looking for a cheaper alternative to markets such as San Francisco or New York. Tech companies have been the leading drivers for new leasing demand over the past year, with IBM, PayPal, Procore, among others behind some of the largest deals of 2024.
What they say: "Austin still has strong growth projections, so the story there is really more about oversupply, and that isn't just related to office space," CoStar's Mobley said. "Any city that grows that fast will deal with certain issues, but eventually things will rebalance there and demand will catch up to fill that oversupply of office and multifamily space. The market seems like it will be one of the winners among others across the country."