**Wave of Office Distress Begins to Materialize in 2025**
The wave of office real estate distress forecasted since the height of the pandemic has begun to materialize in early 2025, according to a new report from CommercialEdge. After a brief period of post-pandemic stabilization, office space utilization has remained stagnant over the past two years, now averaging just 54% nationally, based on data from Kastle’s Back to Work Barometer.
U.S. office vacancy rates have also climbed, rising 170 basis points year-over-year to reach 19.9% by the end of March. “It has become clear that new attitudes focused on remote work are here for the long haul,” said Laura Pop-Badiu of CommercialEdge.
CommercialEdge data also shows a significant increase in the average size of distressed office property transactions. The average square footage rose by 30% year-over-year to surpass 200,000 square feet, indicating that larger assets are increasingly impacted. Central Business District (CBD) properties in distress tripled in 2024, while urban property distress nearly doubled. Although distress in suburban markets has plateaued, these areas still represent half of all distressed office transactions recorded last year.
Despite the bleak near-term outlook, the report suggests that long-term stabilization is possible. Pop-Badiu noted, “Opportunities to adjust will present themselves as the uncertainty surrounding the sector lifts and things begin to move.” One positive sign is the significant reduction in new office supply. Office construction starts dropped from 50 million square feet in 2022 to 25 million in 2023, and further to just 12 million in 2024. This pause in development may offer some relief to owners adapting to the evolving office landscape.
**Pictured:** The 882,071-square-foot Schaumburg Towers in Schaumburg, Illinois, which was sold in early 2024 following a lender takeover.
