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Office Market Roars Back: Demand Outstrips Supply
14 Oct
Summary
- Positive net absorption for five consecutive quarters indicates market strength.
- New office construction is at a near-record low.
- Rents for premium office space have risen over 20%.
The U.S. office market is demonstrating a strong and swift recovery, defying earlier predictions of a pandemic-induced collapse. Occupiers added 6 million square feet in the third quarter, marking the fifth consecutive period of positive net absorption. This robust demand is happening concurrently with a significant decrease in new supply. Just 3.5 million square feet of new office space was delivered in the third quarter, while 9.6 million square feet was repurposed, leading to a national reduction of 45 million square feet since the end of 2023.
The scarcity of available space, particularly premium options, is driving rents upward. Effective rents for first-generation trophy space have increased by more than 20% compared to the third quarter of 2025. This shortage is also pushing demand towards second-generation spaces, where rents have climbed 10% annually. Despite the favorable market conditions for new development, construction remains subdued, with current projects representing only about 9% of normal annual supply due to difficulties in securing equity capital.
