Anticipated Office Distress to Materialize in 2025    

Key Takeaways: 

• The total share of office transactions in distress jumped up to 10.8% throughout 2024 
• The national office vacancy rate rose to 19.9% in March, after a 170-basis-point increase year-over-year 
• The highest office vacancies nationally were seen in major tech markets like Austin (28.5%), the Bay Area (25.5%) and Denver (25.2%) 
• After construction starts totaled only 11.9 million square feet in 2024, the first quarter of 2025 has 2.6 million square feet of starts logged 
• Chicago ranked fourth nationwide in office sales volume, totaling $600 million in transactions year-to-date 

Trends & Industry News

Distress Around Office Sector Escalates in 2025

The wave of distress anticipated since the peak of the pandemic has begun to materialize at the beginning of 2025. Large urban properties are now feeling the pinch as demand continues to fall and many lease contracts come to an end.  

Office utilization has been flat for the last two years, leaving offices with a mere 54% average attendance, as shown by Kastle’s Back to Work Barometer. The U.S. office vacancy rate has been steadily increasing, up 170 basis points year-over-year, to reach 19.9% at the end of March, as shown in our commercial property market report. It has become clear that new attitudes focused on remote work are here for the long-haul. 

Throughout 2024, 25 million square feet of office transactions were in distress, an increase of 39% from the previous three-year average of 18 million square feet. Total transactions leveled off in 2024, remaining just below 2,400. However, the total share of transactions in distress jumped to 10.8%. The average property size for distressed transactions surged by 30% from the previous year in 2024 to over 200,000 square feet, suggesting large properties are increasingly vulnerable. CBD transactions in distress tripled in 2024 from the previous year, while urban properties nearly doubled. Suburban transaction totals leveled off, yet still accounted for half of all distressed office properties registered in 2024. 

We anticipate the trend of individual office building conclusions being finalized to grow in 2025. With this, we expect distress numbers to tick upwards – along with an increase in repositioning and/or conversions occurring.

Peter Kolaczynski, Director, CommercialEdge 

Chicago led the nation with the highest number of distressed transactions in 2024, a total of 26, a modest increase from the 24 distressed transactions seen in 2023. However, the average square footage of each transaction has nearly doubled. After an auction with no bids, Schaumburg Towers, an 882,071-square-foot office complex in suburban Chicago, was acquired by Sigma Plastics Group in March of 2024 for $74 million, at a 15% discount. The property was purchased by American Landmark Properties in 2018 for nearly $87 million before its takeover by Prime Finance after a foreclosure suit in 2023.  

While the office market outlook seems gloomy in the near term, opportunities to adjust will present themselves as the uncertainty surrounding the sector lifts and things begin to move. Pressure will ease off owners as less supply comes online over the next few years. Office starts halved from 50 million to 25 million square feet in 2023, and again to 12 million in 2024. This will give some much-needed breathing room for owners looking to find their place in this decades-long shift happening in the sector. 

Listing Rates and Vacancy

Tech Markets See Highest Vacancies 

The national average full-service equivalent listing rate was $33.42 per square foot in March, up 1 cent over the previous month and 4.9% year-over-year, according to our U.S. office market report. The national office vacancy rate stood at 19.9%, unchanged from the previous month but up 170 basis points year-over-year.  

Top Listings by Metro Area: March 2025

Five markets, all with a high concentration of tech firms—Austin (28.5%), the Bay Area (25.5%), Denver (25.2%), San Francisco (28.6%) and Seattle (27.5%)—had a vacancy rate north of 25% throughout March. The tech industry is more pliable to remote and hybrid work, which has led to a greater share of firms downsizing office footprints. Additionally, the sector was hit by a wave of layoffs that began in late 2022 and continued into 2023. While the period of job losses is largely over, the sector has yet to make a full recovery. 

Supply

Office Development Pipeline Shrinks Further as New Starts Stall in 2025

Nationally, 45.1 million square feet of space was under construction as of March, representing 0.7% of the current stock.  

The office construction slowdown from 2024 appears to only mark the beginning of a prolonged contraction of the development pipeline. After construction starts totaled only 11.9 million square feet last year, 2.6 million square feet of starts were logged across our database in the first quarter of 2025. 

Office Space Under Construction (Million Sq. Ft.) 

Many of this year’s starts were seen outside of top office markets, with West Palm Beach accounting for 1.4 million square feet. Despite not being one of the top 25 office markets that we cover monthly, it’s worth noting that West Palm Beach had more than half of 2025’s new office development year-to-date. Two downtown towers from Related Ross, 10 and 15 CityPlace West, broke ground in March, slated to add nearly one million square feet to the market. West Palm Beach has benefited from an influx of business relocations into Florida throughout this decade. The two luxury towers will include retail and dining facilities, and 15 CityPlace will be anchored by a 120,000-square-foot outpatient facility from Cleveland Clinic. Related Ross also completed One Flagler, a 25-floor building in the CBD, late last year. 

Transactions

D.C. Logs Second-Largest Sales Volume During First Quarter of 2025   

Across the U.S., a total of $10.3 billion in office sales was recorded through the first quarter of 2025, with properties trading at an average of $183 per square foot, as shown in our commercial office market report. 

2025 Year-To-Date Sales (Million)

Washington, D.C., has been one of the busiest office markets in terms of transactions this year, with $767 million recorded in sales through March. The Victor, located at 750 9th Street NW, sold for $153 million, slightly less than the $157.5 million the building traded for in 2005. Despite the discount, the average price of $484 per square foot is significantly higher than the market’s average registered so far this year, of $232 per square foot. 

Western Markets

Rising Vacancies Continue to Hinder the Western Office Sector

San Francisco continued to be the office market with the highest vacancy rate nationwide, at 28.6%, following a 440-basis-point year-over-year increase. Seattle (27.5%) overtook the Bay Area (25.5%) as the market with the second-highest vacancy rate in the region, after a sharp yearly rise of 490 basis points. Denver (25.2%), San Diego (21.6%), and Portland (21.2%) also posted rates above the 19.9% national average. In contrast, Phoenix and Los Angeles remained below the national benchmark. The Los Angeles market (which in our database includes areas like Ventura County and the San Fernando Valley) stood out with a 16.5% office vacancy rate—up just 10 basis points year-over-year—underscoring its relative stability in a region facing persistent occupancy issues. 

Los Angeles also saw a notable increase in office construction, with its pipeline growing from 1.7 million square feet in March 2024 to nearly 2 million square feet a year later. Conversely, the Bay Area recorded the second-smallest office development pipeline in the nation, with roughly 480,000 square feet under construction as of March 2025, a steep drop from 3.8 million square feet a year prior. Seattle was another Western market to face a significant contraction in office development, with its pipeline shrinking from 3.6 million square feet to just 815,000 square feet year-over-year, highlighting a general slowdown in office development in the region. 

West Regional Highlights 

Seattle’s weak demand for office space is evident in its sale prices, which rank among the lowest in the U.S. at just $92 per square foot. San Diego led the region and the nation with an office space cost per square foot of $665, influenced by the trophy transaction of the Life Science building Muse at Torrey Pines. Los Angeles followed, with office assets trading at $286 per square foot. Despite lower prices, at $200 per square foot, the Bay Area led the region in sales volume, totaling $727 million in office transactions year-to-date, more than triple the amount recorded during the same period last year. 

Office rents continued to climb across the West in March, with every major market recording year-over-year increases. San Francisco remained in the lead, posting the most significant annual rent growth in the region at 5% to $63.83 per square foot. Meanwhile, Denver ($30.77 per square foot), Phoenix ($28.57 per square foot), and Portland ($28.26 per square foot) ranked as the most affordable Western office markets, standing below the national rate of $33.42 per square foot. 

Midwestern Markets 

Chicago Sees Stabilizing Vacancy and Gains Investment Momentum

In March, Detroit recorded the highest vacancy rate in the region at 24.5%, after a 140-basis-point rise year-over-year. Meanwhile, Chicago (19%) and the Twin Cities (16.5%) kept their rates below the national office vacancy rate of 19.9%. Notably, Chicago’s vacancy rate held almost completely flat compared to the previous year, signaling early signs of stabilization within the office market. 

The Twin Cities posted the lowest sale office space cost among top U.S. office markets at just $63 per square foot. Still, the market saw a notable increase in office investment activity, with the total sales volume climbing from only $11 million in March 2024 year-to-date to $194 million so far in 2025. Similarly, Chicago experienced a noteworthy upswing in transaction volume, rising from $131 million to $600 million year-over-year. Despite growing sales activity, the market still ranks among the most affordable for office investment nationwide. 

Midwest Regional Highlights

Office rents across Midwestern markets remained the lowest in the nation in March, with Detroit posting the most affordable rate at $21.43 per square foot, following a 4.1% year-over-year decrease. The Twin Cities stood out as the only market in the region to register an annual increase, with in-place rents rising by 2.6%. Despite remaining the most expensive market in the Midwest, with office lease rates averaging $27.51 per square foot, Chicago still ranks well below the national benchmark. 

Office development in the Midwest continued to be among the slowest nationwide, with all major markets having less than 1 million square feet underway. The Twin Cities emerged as the standout in the region, being the only market to record a notable increase in office construction activity. The market’s pipeline grew from 350,000 square feet in March 2024 to 595,000 square feet in March 2025, signaling small steps to a potential rebound in the area’s office market. 

Southern Markets

Austin Still Struggles with Low Occupancy Despite Pricy Rents 

Southern office markets continued to show significant rent disparities throughout March. Miami ($55.84 per square foot) and Austin ($45.82) remained some of the most expensive markets nationwide, followed regionally by Washington, D.C. ($40.59) and Charlotte ($35.31). On the opposite end, Orlando held its spot as the South’s most affordable office market and fourth nationally, with office lease rates averaging $27.89 per square foot. 

Southern markets continued to show contrasting office occupancy rates in March. The average vacancy rate in Austin reached 28.5%, second nationally only to San Francisco’s 28.6%, and reflecting a 650-basis-point year-over-year surge, the highest in the nation. Dallas-Fort Worth (24.2%) and Houston (22.8%) also ranked among the markets with the highest vacancies nationwide. In contrast, Orlando (16.3%) posted the second-lowest office vacancy rate nationally just behind Miami (15.5%), underscoring stronger demand in some Sun Belt metros. 

South Regional Highlights

Miami and Austin remained the most expensive Southern markets for office investment in March, with the average office space cost reaching $285 and $278 per square foot, respectively. Washington, D.C. ($232 per square foot) and Tampa ($200) were the only other two markets to surpass the national average sale price. 

On the other hand, Charlotte continued to be one of the most affordable office markets for investment in the country, with office space prices averaging $81 per square foot. The market also recorded the smallest sales volume in the South, closing Q1 2025 with just $20 million in transactions. Regionally, Washington, D.C., stood out with the highest sales volume year-to-date, reaching $767 million — a major leap from the $92 million recorded during the same period in 2024. 

Austin, Nashville, and Miami led the region in office development on a percentage-of-stock basis, with 3.3%, 2.5%, and 2.3%, respectively. Orlando recorded the smallest pipeline among the top 25 U.S. office markets, with only 358,000 square feet underway as of March, down by nearly half year-over-year. 

Northeastern Markets

Construction Development in the Northeast Continues Slowdown

Northeastern office markets continued to see a slowdown in development activity in March. Manhattan’s pipeline shrank to 1.5 million square feet, half of its year-ago pipeline of 3.2 million square feet. Boston, despite remaining the most active market nationally with 6.3 million square feet of office space under construction, also experienced a notable decline from the previous year’s figure of 13.9 million square feet. 

Office properties in Manhattan continued to be among the most expensive nationwide in March, with an average $439 office space price per square foot — the second-highest rate nationally. Manhattan also led the region in investment activity, doubling its year-over-year sales volume to reach $2 billion by the end of Q1 2025. In contrast, Philadelphia posted the most affordable sale price in the Northeast at $117 per square foot. While the market did see a year-over-year uptick in investment activity, total sales volume remained subdued at $90 million, the lowest in the region. 

Northeast Regional Highlights 

Despite a 3.2% year-over-year decrease, Manhattan maintained its position as the most expensive office market in the nation, with average office lease rates at $69.03 per square foot being more than double the national average of $33.42 per square foot. Boston was next in the region with in-place rents at $46.06 per square foot. Meanwhile, New Jersey posted more affordable rents at $33.36 per square foot, falling below the national average for the first time this year. 

Although Philadelphia’s vacancy rate increased by 400 basis points year-over-year to 19.7%, it still sits below the national average of 19.9%. Boston saw its vacancy rate climb 440 basis points year-over-year to 17.1%, the steepest annual rise in the region. Meanwhile, Manhattan kept its status as one of the strongest office markets in the country, posting the lowest office vacancy rate in the Northeast at 16.5%, following a 100-basis-point decline from a year ago. 

Office-Using Employment  

Silver Lining Seen in Financial Activities Sector’s Growth

Office-using sectors of the labor market added a total of 10,000 jobs in March. Most of the gains in the month were driven by the Financial Activities sector, which added 9,000 workers. The Professional and Business Services sector added 3,000 jobs, while Information lost 2,000. Office-using sectors grew by a minor 0.1% since last March, the first yearly gain since October 2023. However, slightly more than half of the top 25 U.S. markets saw year-over-year losses in office-using sectors in March. 

Office Using Employment 

Office-using sectors have stagnated in recent months, another blow to an office market already challenged by the rise in remote work. The Financial Activities sector has been the only bright spot, although even growth in that sector has been marginal. Over the last two years, Financial Activities has added 93,000 jobs, translating into a 1% growth. During that same time, the Professional and Business Services sector has lost 245,000 jobs (-1.1%), while the Information sector has lost 117,000 jobs (-3.8%). 

Download the report

Download the PDF report to view more, including the map for office-using employment growth.

You can also see our previous office reports. 

Share this article:

• Facebook
• X
• LinkedIn
• WhatsApp

Methodology 

This report covers office buildings 25,000 square feet and above. CommercialEdge subscribers have access to more than 14,000,000 property records and 300,000 listings for a continually growing list of markets.  

Get access to over 13M commercial property records with regularly verified commercial data, including local market insights, true ownership and construction projects with CommercialEdge Research. 

CommercialEdge collects listing rate and occupancy data using proprietary methods.  

Listing Rates — Listing Rates are full-service rates or “full-service equivalent” for spaces that were available as of the report period. CommercialEdge uses aggregated and anonymized expense data to create full-service equivalent rates from triple-net and modified gross listings. Expense data is available to CommercialEdge subscribers. National listing rate is an average of all markets. Prior to July 2024, this report used the top 50 markets for a national average.

Vacancy — The total square feet vacant in a market, including subleases, divided by the total square feet of office space in that market. Owner-occupied buildings are not included in vacancy calculations.  

A and A+/Trophy buildings have been combined for reporting purposes.  

Stage of the supply pipeline:  

Planned — Buildings that are currently in the process of acquiring zoning approval and permits but have not yet begun construction.  

Under Construction — Buildings for which construction and excavation has begun.  

Office-Using Employment is defined by the Bureau of Labor Statistics as including the sectors Information, Financial Activities, and Professional and Business Services. Employment numbers are representative of the Metropolitan Statistical Area and do not necessarily align exactly with CommercialEdge market boundaries.  

Sales volume and price-per-square-foot calculations for portfolio transactions or those with unpublished dollar values are estimated using sales comps based on similar sales in the market and submarket, use type, location and asset ratings, sale date and property size.  

Market boundaries in the CommercialEdge office report coincide with the ones defined by the CommercialEdge Markets Map and may differ from regional boundaries defined by other sources. 

Fair Use and Redistribution

We encourage you and freely grant you permission to reuse, host, or repost the research, graphics, and images presented in this article. When doing so, we ask that you credit our research by linking to CommercialEdge.com or this page so that your readers can learn more about this project, the research behind it and its methodology. For more in-depth, customized data, please contact us at [email protected].