U.S. office occupancy declined in the second quarter of 2025, although improving leasing activity and positive demand signals suggest a momentum shift from the 2Q20 – 3Q24 period. Green shoots exist in the South which has captured healthy office employment growth in the post-pandemic period, while the government, education, and healthcare sectors have driven recent job? growth. This report explores the current state of the national office market and highlights future trends.
Labor Markets
Since February 2020, new office-using jobs have generated an estimated 346.9 million SF of office demand—partially offsetting the impact of hybrid work. Still, sustained job growth remains essential to a full recovery in office markets. More recently, the education, healthcare and government sectors have led growth, with a combined 381,678 jobs added over the past 12 months. While office-using employment continues to expand, growth has flattened since 2023, largely due to underperformance in the tech sector. Among the top 50 office markets, 29 recorded gains in office-using employment over the past six months, with 17 of those markets posting faster growth than in the prior six-month period.
Hybrid Work Transition
Slower job growth increases office markets’ exposure to demand shifts driven by hybrid work. Newmark estimates that 49% of pre-pandemic leases remain unrenewed, including 1.4 billion SF scheduled for renewal between 2025 and 2027. Average lease sizes have also declined by 12.5% from pre-pandemic levels, signaling potential ongoing reductions in demand. However, Newmark’s tenants-in-the-market data shows that 69% of tenants plan to either maintain or expand their footprints at renewal. As a result, the outlook is less dire and points to a gradual recovery.
National Trends
Occupied space declined by 2.5 million SF in the second quarter of 2025, with losses totaling 4.0 million SF year-to-date. Still, performance is improving from the 2020 Q2 – 2024 Q3 period, when average quarterly losses amounted to 15.6 million SF. Leasing activity rose in half of the tracked markets, with national leasing reaching 1.2% of inventory, slightly above the prior year’s quarterly average of 1.1%. National vacancy remained relatively stable quarter-over-quarter and rose only 20 basis points year-over-year to 20.4%. The construction pipeline contracted to 29.0 million SF, down more than 15.0 million SF from the second quarter of 2024.
Regional Trends
The South was the only region to post occupancy gains in the second quarter of 2025; notable gains were recorded in Houston (+571,948 SF) and Nashville (+499,795 SF). The Central, East and West regions posted combined losses of 3.2 million SF during the quarter. As leasing activity continues to rise—especially in higher-tier properties—net absorption is expected to strengthen across regions and market sizes in the quarters ahead. The South accounts for 47.6% of the under-construction inventory, much of which is scheduled for delivery by year-end 2025.
Rent Trends
Asking rents rose 0.5% year-over-year during the second quarter of 2025, with stronger gains recorded in secondary and tertiary markets (+3.7%) and the South (+2.4%). However, elevated concessions continue to compress effective rents, with tenant improvement (TI) allowances now averaging 68% above pre-pandemic levels across leading office markets. One interpretation of flat nominal rents is that a portion of the market reset has already been absorbed through inflation—as producer price index (PPI)-adjusted office rents are down 18.8% since the second quarter of 2020.
