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**Office Q3: Bifurcation in Play While Construction Stalls**
Reports analyzing third-quarter trends in the U.S. office market reached consensus on several key themes, including falling vacancy rates, a growing bifurcation between Class A and Class B/C office space, and a continued slowdown in new construction.
According to Cushman & Wakefield’s MarketBeat report, “The combination of improving demand and slowing new supply is helping stabilize the broader office market.”
JLL echoed this sentiment in its Market Dynamics report, stating, “With footprints beginning to expand and little new development, office could be entering an extended period of declining vacancy rates.” CBRE’s analysis agreed, citing improving demand and shrinking supply as critical factors in the market’s stabilization.
However, not all reports were wholly optimistic. Lee & Associates’ North America Market Report cautioned that a softening job market was suppressing recovery. “Government reports and revisions show payrolls 2% below their 2023 peak in key knowledge industries including technology, life sciences, professional and financial services, advanced manufacturing, and creative/media,” the firm noted.
**Continued Demand for Class A Space**
Trophy assets and high-end office buildings with robust amenities remained in demand throughout Q3. Cushman & Wakefield analysts observed a shift where companies, after years of downsizing, are once again expanding—particularly in top-tier buildings.
CBRE reported that office lease renewals were above pre-pandemic averages, driven by the high costs associated with moving and new construction. Similarly, Plante Moran’s analysts stated that “Class A+ buildings continue to outperform,” with resilient leasing activity in top-tier markets where much of the hybrid work downsizing has already occurred.
Still, Class B buildings are not entirely out of the picture. JLL reported that in markets where large blocks of new space are limited, second-generation buildings have seen more aggressive rent growth. But CBRE pointed out that generous tenant improvement allowances and free rent periods were still reducing effective rent growth for Class B and C buildings. Plante Moran added that older, less competitive properties continue to face significant challenges.
Adding another layer to the story, Colliers noted that some vacant office buildings were removed from active inventory ahead of prospective conversions to alternative use types.
**Supply Pipeline Continues to Tighten**
Despite an improving market backdrop, several reports noted a continued slowdown in new construction. JLL framed the development pipeline as experiencing an “aggressive correction,” while Colliers reported that new activity “remains constrained.” Lee & Associates described the pace of new supply growth as “down to a trickle.”
Cushman & Wakefield suggested that the lack of new development will likely lead to increased occupancy rates in existing buildings, helping further stabilize the overall office market.
**Future Outlook**
Looking forward, JLL analysts expect momentum to shift in a more landlord-favorable direction, spurred by ongoing tenant expansion, a slowdown in development, and permanent inventory removal through conversions. They project this trend will continue for at least three to four more years.
Cushman & Wakefield predicts a sustained flight to quality, with demand gradually expanding to include commodity Class A space and well-situated Class B buildings offering strong amenities and transit access.
Plante Moran provided a more cautious outlook. They expect new supply to remain low through at least 2029, with national occupancy unlikely to stabilize before late 2026. Additionally, high capital costs, weak demand in select markets, and limited renovation projects suggest a slow and uneven recovery process ahead.
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