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**Q2 2025 Office Market Update: Signs of Recovery Amid Ongoing Challenges**
Since the onset of the COVID-19 pandemic, the U.S. office sector has struggled with high vacancy rates and weak absorption. The second quarter of 2025 carried similar themes, but there are emerging signs of improvement: demand is edging up, and new construction activity is declining.
According to Cushman & Wakefield’s US MarketBeat report, while negative absorption persisted in Q2, the rolling average continued to improve. Notably, 35 markets recorded positive absorption over the past four quarters—a signal that some areas are beginning to stabilize.
JLL’s Office Market Dynamics report echoed this sentiment, highlighting that net absorption is beginning to level out. Without the impact of large federal lease terminations, the quarter saw a net loss of just over 2 million square feet—suggesting a less severe pace of office space giveback compared to recent quarters.
Plante Moran’s US Office Real Estate Market Report for Q2 2025 offered a more nuanced view. While leasing momentum is growing, the market’s recovery remains uneven. One key insight: the average lease size is 15% smaller than pre-pandemic levels, indicating that users continue to reevaluate their space needs.
Data also shows that much of the current leasing activity is driven by smaller tenants upgrading their offices to higher-quality spaces. In contrast, larger companies remain cautious, reflecting continued uncertainty around long-term office requirements and return-to-office policies, which are slowly starting to fuel more consistent demand.
Performance across different types of office buildings remains varied. Across the board, reports agree that Class A and newly constructed trophy buildings are outperforming older inventory, thanks to better design, prime locations, and employee-friendly amenities.
One of the more supportive trends for the office sector is the significant decline in new development. As noted in each report, fewer projects are underway than before the pandemic. Plante Moran analysts highlighted that office supply growth reached a decade low in 2024, which could help rebalance the market in the medium term.
However, not everything is pointing upward. Both JLL and Lee & Associates observed that leasing activity plateaued in Q2. Lee & Associates’ North America Market Report noted sluggish activity over the past three months and emphasized that tenants are still moving toward smaller footprints, with continued space consolidation reported in many markets.
Looking ahead, market outlooks are cautiously optimistic. Cushman & Wakefield analysts pointed out that more companies are encouraging in-office attendance, which could drive demand, particularly in office-centric industries. Moreover, the increased interest in “space-as-a-service” models indicates that tenants are seeking experiential, adaptable workplaces. This trend bodes well for high-quality buildings in desirable locations.
JLL anticipates that leasing recovery will gain momentum in the second half of 2025. Analysts believe that, absent significant macroeconomic disruptions, office demand could recover more quickly than expected. As demand builds, particularly in the Class A sector, a shortage of premium space could drive up renewal rates and asking rents.
In summary, while the U.S. office market continues to navigate its post-pandemic transformation, Q2 2025 brought modest but meaningful signs of progress—especially in well-located, high-quality assets. With declining supply and gradual increases in leasing, the market may finally be turning a corner.
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