**Q2 Office Sector Shows Signs of Stabilization Amid Continued Challenges**
The U.S. office market continues to face headwinds in 2025, with vacancy and absorption issues still weighing on the sector. However, recent data shows signs of modest improvement, as demand starts to slowly rebound and construction activity declines.
According to Cushman & Wakefield’s U.S. MarketBeat Report, negative absorption persisted in the second quarter, though trends are improving. Notably, 35 markets reported positive absorption across the past four quarters, highlighting early signs of stabilization.
JLL’s Office Market Dynamics report echoed similar findings, remarking that net absorption was nearly stable in Q2, despite over 2 million square feet of occupancy loss. The report attributed this steadiness, in part, to the absence of large-scale federal lease terminations, which had previously elevated downsizing activity. Leasing volumes remained consistent, marking the most stable quarterly demand performance since late 2021.
Plante Moran’s U.S. Office Real Estate Market Report for Q2 2025 described leasing momentum as slowly building. However, it underscored that the recovery remains uneven, with average lease sizes about 15% smaller than they were pre-pandemic. The report pointed out that smaller tenants are showing higher leasing activity as they upgrade their spaces, while larger firms remain more conservative. The increasing implementation of return-to-office policies is also playing a role in nudging demand upward.
Market observers agree that not all office space is benefiting equally. High-end, Class A or newer trophy assets are outperforming older, less modern office inventory. At the same time, construction of new office space has dropped significantly. All reported analyses noted a decrease in buildings under construction compared to pre-pandemic levels. Plante Moran further specified that supply growth reached a decade low in 2024.
While leasing activity appears to be plateauing in Q2, as observed by Lee & Associates’ North America Market Report, analysts noted sluggish tenant growth over the past three months. Requirements from tenants are trending toward smaller footprints, and space consolidation efforts are still ongoing in many markets.
Looking ahead, the outlook carries a tone of cautious optimism. Cushman & Wakefield analysts observed that more employers are encouraging on-site work, fostering increased demand from office-based sectors. They also noted that well-designed, experiential buildings in high-quality markets will be increasingly attractive, especially as space-as-a-service solutions gain popularity.
JLL predicted that the leasing recovery will gain momentum in the second half of 2025. They emphasized that if macroeconomic conditions improve, office demand could rebound swiftly. Declining availability of high-end spaces may also lead to higher renewal rates and a potential increase in asking rents for premium Class A properties.
While the path to full recovery remains uncertain, these reports collectively indicate that the office sector is gradually finding its footing, with some positive indicators emerging despite ongoing challenges.
