The national office vacancy rate surged to 19.9% in Q1 2025, the highest level recorded since the early 1990s, as hybrid work models, corporate belt-tightening, and evolving workplace strategies continue to reshape the commercial real estate landscape. While urban cores in major cities still maintain some leasing momentum, the broader picture paints a market grappling with a long-term identity crisis.
This latest figure, released by CBRE, signals a continuing climb in office space availability across nearly every major U.S. market. Vacancy rates have been slowly rising for years, but the acceleration post-2020 is now entering a critical phase—prompting landlords, developers, and investors to reassess the fundamental purpose and design of the workplace.
“We are witnessing a structural recalibration in office demand that may take years to stabilize,” said Julie Whelan, Global Head of Occupier Thought Leadership at CBRE. “The pandemic didn’t just disrupt the workplace—it permanently changed employee expectations and corporate real estate strategies.”
From Temporary Disruption to Long-Term Shift
What started as a pandemic-induced pause on office attendance has matured into a complex and persistent transformation. Hybrid and remote-first policies have become entrenched across tech, finance, and even sectors once considered office-dependent, like law and consulting. According to a recent survey by JLL, more than 60% of major U.S. companies now operate on a hybrid model, with the average employee working from the office only 2.6 days per week.
This shift is directly impacting how much space companies lease—or shed. In many cases, large firms are opting not to renew multi-floor leases, consolidating into smaller footprints, or implementing “hot desk” models that rotate in-office staff.
The outcome is visible across skyline after skyline. Midtown Manhattan, for instance, reached a 20.2% vacancy rate, while downtown San Francisco soared to 34.6%, both driven by a combination of tech sector contraction and significant new office deliveries hitting the market with no committed tenants.
“We’ve never seen so much sublease space come online in such a short timeframe,” said Colliers Managing Director Travis Metcalf. “Companies that signed 10-year leases in the 2010s are now urgently offloading space they no longer need—and in this market, finding takers isn’t easy.”
Sublease Space and Shadow Inventory
Sublease space has become a leading indicator of office market distress. As of April 2025, there are over 240 million square feet of sublease space available across the U.S., a number that has more than doubled since 2019. This “shadow inventory” is often priced well below market rate, further pressuring landlords who are already offering generous concessions to attract direct tenants.
Landlords with older, Class B or C assets are feeling the brunt of the impact. These buildings, which often lack the high-end amenities and flexible layouts demanded by today’s tenants, are increasingly viewed as obsolete unless significantly upgraded. Many landlords are considering conversions to residential or mixed-use formats, though zoning and capital constraints complicate those efforts.
Flight to Quality: The Silver Lining
Despite the bleak headline numbers, not all office properties are suffering equally. A “flight to quality” remains one of the few bright spots in the sector. Class A trophy towers—particularly those with LEED certification, advanced air filtration systems, and modern layouts—are still attracting premium tenants.
Markets like Miami, Austin, and Nashville are bucking national trends to some extent, bolstered by in-migration of businesses and residents. Miami’s Brickell submarket, for example, saw only a marginal rise in vacancy, supported by the expansion of finance and tech firms relocating from New York and California.
“There’s a clear bifurcation in the market,” said CBRE’s Whelan. “Tenants want less space, but they want better space—buildings that can support employee well-being, sustainability goals, and flexible work.”
Capital Markets and Development Freeze
The rising vacancy rate has not only impacted leasing—it’s also putting a deep chill on capital markets and new development. Office deal volume in Q1 2025 fell by nearly 65% year-over-year, according to MSCI Real Assets, as interest rates remain elevated and lenders steer clear of speculative office investments.
Several high-profile office projects across cities like Los Angeles, Seattle, and Chicago have been paused or canceled altogether. In New York City, developers of a planned $1.2 billion tower near Penn Station announced a strategic pause, citing market uncertainty and a lack of anchor tenants.
Institutional investors are similarly cautious. Office REITs have underperformed broader equity benchmarks for several quarters, and pension funds are quietly rebalancing away from office-heavy portfolios. Distressed asset sales, once a rarity in core markets, are becoming more common, with discounts of 30–50% below peak values.
Adaptive Reuse and Policy Intervention
In response to the glut of underutilized office space, a growing number of cities are pushing adaptive reuse initiatives. In Washington, D.C., a pilot program aims to streamline conversion permits and offer tax credits for developers transforming outdated offices into multifamily housing.
New York City’s “City of Yes” zoning reform initiative, still under public review, could unlock thousands of potential conversions in commercial districts. Meanwhile, San Francisco’s downtown recovery task force has proposed subsidies for property owners willing to retrofit vacant offices into community or cultural spaces.
But experts caution that these strategies will take time—and money. The technical and legal challenges of converting office to residential remain steep, particularly in high-rise buildings not originally designed for residential life.
The 19.9% national vacancy rate is not just a number—it’s a reflection of an industry in transition. Office real estate, once a bedrock of institutional portfolios and urban vitality, is now confronting the urgent need to evolve.
In the years ahead, the most successful players in the office sector may not be those who hold on to square footage, but those who rethink what the office is—and who it’s for. Developers will need to design with flexibility, hospitality, and community in mind. Cities must provide the regulatory scaffolding for reinvention. And occupiers will continue to demand spaces that align with the new reality of work.
The question is no longer when offices will return to pre-pandemic occupancy—it’s whether they should, and what will replace what’s left behind.
Sources: CBRE, JLL, Colliers, MSCI Real Assets, The Wall Street Journal, Bloomberg, Commercial Observer
