Office Transformation Extends into 2025, Expecting Vacancy Rates to Plateau    

Key Takeaways: 

• The average U.S. office listing rate was $33.11 per square foot in December, up 4.5% year-over-year 
• The national vacancy rate reached 19.8% at the end of 2024, marking a 150-basis-point increase year-over-year 
• During 2024, 43.2 million square feet of office space was delivered, the lowest yearly total since 2013 
• Office vacancies continued to rise in 2024, with six of the top 25 office markets recording year-over-year surges of over 500 basis points 
• Despite shrinking by almost 6 million square feet over the past 12 months, Boston’s office pipeline is still the largest nationwide 
• Midwestern markets recorded the lowest asking rates nationwide at the end of 2024, with Detroit being the most affordable at $21.46 per square foot 

Trends & Industry News

Another Rocky Year Expected for the Office Market

The office sector is expected to face another challenging year in 2025, our office real estate outlooks show, and the biggest setbacks may not yet be in the rear-view mirror. We are in the early stages of a multi-decade transformation, with the sector still adapting to the post-pandemic world. However, considering the recent and upcoming return-to-office mandates across multiple industries, it remains to be seen what changes and fluctuations are bound to define 2025, some of which are likely to benefit office spaces.  

The national vacancy rate at the end of 2024 stood at 19.8%, an increase of 150 basis points over the last twelve months, as highlighted in our U.S. office market report. We do not anticipate vacancies to fall this year despite high-profile return-to-office mandates from major corporations. Office utilization rates, though imperfect, have plateaued in the last two years, indicating that many companies have permanently embraced remote and hybrid work. While return-to-office announcements from high-profile firms such as AT&T have gained ample media attention, commitments from many companies to downsize their office leases and retain hybrid work have gone under the radar. Any vacancy decreases in the next few years will likely be driven by shrinking office space stock due to obsolescence or conversion, not by a rapid rise in occupied space.    

As underlying headwinds remain in place from 2024 to 2025, we are anticipating more individual building results to be determined. This can include success in obtaining new debt, increased transaction volume for new opportunities or repositioning toward coworking, but also full-on conversion or decommissioning of properties altogether.

Peter Kolaczynski, Director, CommercialEdge 

We anticipate that conversions will continue apace in 2025 at approximately the same rate they have in recent years. While a wave of conversions was expected to take root in response to depressed office utilization, that has not been the case. Logistical and financial roadblocks are still difficult to pencil out. It is likely that localities will continue to explore ways to provide incentives for developers that can creatively re-purpose empty offices, such as New York’s Office Conversion Accelerator Program or Washington D.C.’s Office-to-Anything initiative. While office-to-residential will remain the primary conversion category, we also expect growing interest in conversions to data centers and industrial facilities.  

At the same time, coworking has emerged in 2024 as a popular alternative to traditional office spaces, exceeding 7,500 locations across the U.S. While not a conversion per se, the coworking trend makes way for transitions within the office sector, which are especially valuable when applied to vacant buildings and underutilized space.  

Although there may be an uptick in sales volume in 2025, the average price for office space will likely show limited to no gains. Recent interest rate cuts have slightly reduced the cost of debt, but stubborn inflation could lead to fewer cuts in 2025 than anticipated. Given that office utilization rates have plateaued and hybrid work is now the norm for many firms, investor demand will remain muted, our office real estate outlook indicates. We also expect a significant share of office properties to continue trading at discounted prices. Billions of dollars in loans are maturing this year, many for buildings that have struggled to maintain occupancy in recent times. 

Listing Rates and Vacancy

Where Vacancies Increased the Most in 2024

The national average full-service equivalent listing rate was $33.11 per square foot in December according to our latest U.S. office market report, up six cents since last month and 4.5% year-over-year.

The national U.S. office vacancy rate was 19.8%, marking a monthly increase of 40 basis points and 150 points year-over-year. 

Top Listings by Metro Area: December 2024 

While every market witnessed surging vacancies in recent years, some places saw sharper increases than others. Six of the top 25 U.S. office markets saw their vacancy rate increase by more than 500 basis points in 2024. Austin experienced the biggest jump, with a vacancy rate that grew 690 basis points since December 2023, reaching 27.9%. Other markets with significant vacancy increases in 2024 were the Bay Area and Portland (both at 620 basis points), San Francisco and Philadelphia (both at 520 basis points) as well as Boston (510 basis points).

Supply

Office Deliveries in 2024 The Lowest in 10 Years

Nationally, 54.7 million square feet of office space was under construction at the end of December, representing 0.8% of the current stock, our U.S. office market report shows. This represents a 43.6% drop year-over-year from the 97 million square feet recorded last January. Throughout 2024, 43.2 million square feet of office stock was delivered, the lowest yearly total since 2013.

Office Space Deliveries (Million Sq. Ft.) 

The reduction in construction activity falls in line with the most recent changes in office culture, defined by a new work culture reliant on remote and hybrid work. The attitudes of workers, who have built their lives around a new remote work model, remain entrenched on this issue. Despite media buzz around major U.S. companies enforcing return-to-office policies, it is unlikely that any large-scale cultural change will happen soon, especially considering that many workers from the younger generation have only ever known a remote work environment.

New construction starts in 2024 reflect these shifts, with a mere 9.8 million square feet breaking ground, a low mark this century. For context, 83 million total construction starts were recorded in 2019, a number that has consistently declined since. 

Western Markets

San Francisco Wraps 2024 with Highest Vacancy Rate in the Nation

The surge in vacancy rates registered in 2024 across the nation was driven by a wave of lease expirations, as anticipated by office real estate outlooks. This shift led to San Francisco posting the lowest occupancy rate among major U.S. markets throughout most of the year, below that of Houston and Detroit, the year-ago leaders. By the end of 2024, San Francisco maintained the nation's highest office vacancy rate at 28.8%, up 520 basis points year-over-year.

Three additional Western markets ranked among the five with the highest vacancy rates nationwide: The Bay Area (26.4%), Seattle (26.35) and Denver (24.7%). Despite being the Western market with the lowest vacancy rate a year ago, Portland has also seen a significant rise of 620 basis points in vacancies, exceeding the national average and resting at 21.8%.

West Regional Highlights 

Meanwhile, asking rents in the Bay Area remained mostly flat, recording $54.13 per square foot at the end of 2024, maintaining its position as one of the most expensive U.S. office markets. While most Western office markets continued to be among the priciest in the nation, Denver ($31.09 per square foot), Phoenix ($28.39) and Portland ($27.89) posted asking rents below the national average of $33.11 per square foot.

Office Space Under Construction (Million Sq. Ft.) 

In December 2024, San Francisco had the second-largest office construction pipeline in the nation, trailing only Boston, despite having only 200,000 square feet of office space breaking ground in 2024. Meanwhile, San Diego posted the fourth-largest pipeline among the top U.S. office markets at the end of the year. However, both Western markets showed a decline in construction activity compared to the end of 2023: San Francisco's pipeline shrank from 7 million to 3.8 million square feet, while San Diego's decreased from 5 million to 3 million square feet.

Midwestern Markets 

Office Development Continued to Slow in Chicago Through 2024

Midwestern office markets remained the most affordable among top U.S. markets, with only minor rent increases recorded throughout 2024. Detroit posted the lowest average rental rate nationwide at $21.46 per square foot, followed by the Twin Cities at $26.25 per square foot and Chicago at $27.30 per square foot.

Detroit stood out as the only Midwestern market with a vacancy rate above the national average, at 24.7%. At the other end of the spectrum, Minneapolis-St. Paul posted the third-lowest vacancy rate among leading office markets in the nation, at 16.2%.

Midwest Regional Highlights

Despite continuing to lead the region in office development, Chicago's pipeline saw a notable year-over-year decline. The amount under construction dropped from nearly 1.8 million square feet at the end of 2023 to just 870,000 as of December 2024, due to completions outpacing the meager 69,000 square feet of new space that broke ground in 2024. Throughout the year, Chicago saw 1 million square feet of office space delivered, down from the 1.5 million square feet completed in 2023. Still, amid all the challenges faced, Chicago managed to maintain a vacancy rate below the national average, at 18.8%.

Southern Markets

Texas Office Markets See Highest Vacancies in the South

Most Southern office markets registered rising vacancies throughout 2024, reflecting persisting challenges in the region, with Texas hubs seeing the lowest level of office occupancy in the region. Austin posted the highest vacancy rate in the South and second nationally at 27.9%. This reflects a notable surge of 690 basis points year-over-year, the highest among leading U.S. office markets.

The Dallas-Fort Worth Metroplex also saw a 380-basis-point vacancy increase from a year ago, resting at 24%. Meanwhile, Houston is among the few Southern markets posting declines in vacancy rates, after a slight year-over-year decrease of 40 basis points to stop at 24.5%.

South Regional Highlights

Regarding office rents, Miami recorded the highest rate in the region and the third-highest nationwide at $54.37 per square foot. In contrast, Orlando posted one of the most affordable average rates at $28.11 per square foot. Meanwhile, Houston ($30.24 per square foot) and Dallas-Fort Worth ($31.31) had rents below the national average.

Office development activity in the South saw a notable slowdown throughout 2024. As of December, Austin and Dallas-Fort Worth led the region in office construction with 3.5 million and 3 million square feet under construction, respectively—both significantly below their year-ago pipelines of 5 million and 4.9 million square feet. Notably, Washington, D.C., continued its multi-year decline in construction activity, with its pipeline shrinking from 3.5 million square feet at the end of 2023 to only 1 million square feet in December 2024. Over 2.2 million square feet of office space was delivered in 2024 in Washington, D.C., while no construction starts were recorded.

Northeastern Markets

Boston Among Most Expensive Office Markets in the Nation

Boston continued to lead the U.S. in office development, with 8.7 million square feet under construction as of December. This figure was more than double that of the runner-up, San Francisco, which had 3.8 million square feet underway. However, Boston ranked third in construction activity on a percentage-of-stock basis, with projects accounting for 3.4% of stock, trailing Austin (3.7%) and Nashville (3.6%).

Nonetheless, Boston’s pipeline shrank to nearly half compared to a year ago, when 14.6 million square feet were underway. Throughout 2024, over 1.1 million square feet of office space broke ground — more than in any other market covered within our report — but still represented a significant slowdown compared to 2023, when construction starts totaled 2.7 million square feet.

Northeast Regional Highlights 

In terms of rental rates, Boston’s asking rents rose to $53.35 per square foot, placing it among the top five most expensive office markets in the nation. New Jersey’s asking rents were slightly higher than the national average at $33.71 per square foot, while Philadelphia continued to be the only Northeastern market to trail the national average figures, with rents at $30.80 per square foot.

Despite rising vacancies across all Northeastern markets throughout 2024, all maintained rates below the national average as of December. Philadelphia and New Jersey posted the highest rates in the region, both at 19.4%. However, Philadelphia saw a 520-basis-points rise in vacancy year-over-year, one of the steepest surges among leading U.S. office markets. Boston also recorded a significant increase of 510 basis points over the same period, ending the year with a 17% vacancy rate. Manhattan still marked the lowest vacancy rate in the region and the fifth lowest nationally at 16.6%.

Office-Using Employment  

Charlotte Leads Office Employment

Office-using sectors of the labor market gained 51,000 jobs during December, according to the Bureau of Labor Statistics, now exceeding 35 million jobs. Most of this gain was in the professional and business services sector, which added 28,000 jobs, with Charlotte far in the lead. Meanwhile, the financial activities sector added only 13,000 jobs and the information sector added a mere 10,000 jobs.

Office Using Employment 

Year-over-year growth for office-using jobs has been relatively flat since the steep decline during the COVID-19 reshuffle. In 2024, office-using sectors added an average of 137,000 jobs year-over-year, compared to a 1.6 million average in 2022. On December 18th, the Federal Reserve Board announced a 25-basis-point rate cut with the goal of increasing employment. Despite recent cuts, remote work trends are likely to continue hindering any boost that lower rates may give the sector.

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You can also see our previous office reports. 

Methodology 

This report covers office buildings 25,000 square feet and above. CommercialEdge subscribers have access to more than 14,000,000 property records and 300,000 listings for a continually growing list of markets.  

Get access to over 13M commercial property records with regularly verified commercial data, including local market insights, true ownership and construction projects with CommercialEdge Research. 

CommercialEdge collects listing rate and occupancy data using proprietary methods.  

Listing Rates — Listing Rates are full-service rates or “full-service equivalent” for spaces that were available as of the report period. CommercialEdge uses aggregated and anonymized expense data to create full-service equivalent rates from triple-net and modified gross listings. Expense data is available to CommercialEdge subscribers. National listing rate is an average of all markets. Prior to July 2024, this report used the top 50 markets for a national average.

Vacancy — The total square feet vacant in a market, including subleases, divided by the total square feet of office space in that market. Owner-occupied buildings are not included in vacancy calculations.  

A and A+/Trophy buildings have been combined for reporting purposes.  

Stage of the supply pipeline:  

Planned — Buildings that are currently in the process of acquiring zoning approval and permits but have not yet begun construction.  

Under Construction — Buildings for which construction and excavation has begun.  

Office-Using Employment is defined by the Bureau of Labor Statistics as including the sectors Information, Financial Activities, and Professional and Business Services. Employment numbers are representative of the Metropolitan Statistical Area and do not necessarily align exactly with CommercialEdge market boundaries.  

Market boundaries in the CommercialEdge office report coincide with the ones defined by the CommercialEdge Markets Map and may differ from regional boundaries defined by other sources. 

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