Executives from major brokerages share their market insights
Marcelo J. Canel, I sell Properties in Los Angeles
Coldwell Banker Commercial Multi-Family Real Estate-Investment sales. & Leasing DRE Lic. 01131904 NMLS 882636
It has been five years since the onset of COVID-19 profoundly disrupted social and economic activity around the globe. While lockdowns and social distancing have become distant memories for most, the pandemic’s effects are still reverberating — nowhere more so than in commercial office buildings.
The recent stabilization of demand in the office market suggests the beginning of a new phase in the sector’s long recovery. To gain perspective on this shift and the prospects for office buildings going forward, CoStar’s national director of office analytics, Phil Mobley, asked executives at the industry’s largest brokerages for their takes.
Participating in this wide-ranging discussion were:
CoStar: We saw office demand stabilize in 2024 with net absorption, the difference between move-ins and move-outs, turning positive at the end of the year. Are we finally seeing the beginning of a recovery?
David Bitner: In a word, yes. While it’s just one quarter of positive net absorption, it has been improving for some time, giving us confidence this is a trend rather than an aberration. The bigger question is, what kind of pace will this recovery be able to sustain? We remain cautious for two reasons. First, office-using employment growth has been moderate to weak. Second, many pre-pandemic leases are coming up for renewal in the next few years, which could lead to some degree of downsizing.
Danny Mangru: We are just in the early innings, with some markets, like Manhattan, further ahead, while others are still getting out of spring training. Last year we saw a number of positive indicators for the office market. Leasing activity increased in several office markets, including San Francisco, Manhattan and Dallas, which increased over 2023 leasing activity by 50%, 18%, and 11%, respectively. We continue to monitor this momentum in 2025 and remain hopeful that occupier confidence will persist.
Jacob Rowden: We were beginning to see the early stages of recovery as far back as mid-to-late 2023, but with each passing quarter, it seems a new milestone is passed. Tenant requirements have been trending upwards, sublease availability has been falling since mid-2023, and then in 2024, we saw three consecutive quarters of post-pandemic leasing highs. These are all clear signs that a recovery is unfolding, but there are more milestones to pass. Sales activity is improving slowly amid volatile interest rate forecasts. In an environment where differentiated, amenitized buildings are driving a large share of leasing activity, improving capital deployment is an important part of ensuring that there is enough supply to accommodate that demand.
David C. Smith: The end of last year showed signs of life, and there are reasons to believe the market is firming up. In the last quarter of 2024, net absorption had its best quarter since the Fed began raising interest rates and was positive in nearly half of U.S. markets tracked by Cushman & Wakefield Research. One extremely strong indicator of better days ahead is that the sublease market has shrunk 3.8% from its early 2024 peak. A shrinking sublease market is historically a leading indicator of a peak in overall vacancy and a tightening market. The amount of available sublease space has declined for three straight quarters, partly because occupiers have become more confident about their near-term future space needs.
Julie Whelan: The office market is now out of triage, allowing us to focus on its long-term health. While true recovery will take some time, it is a positive that the market has stabilized, with leasing picking up, tenant contraction easing, and in turn, vacancies ticking down, albeit slowly. Assuming the economy remains stable, leasing activity will continue to grow modestly, and tenants will focus on growing portfolios that support their organizational goals and culture.
CoStar: The office supply pipeline is drying up quickly and deliveries will soon be historically low. How will this impact the market?
Devon Munos: The number of new construction options in many office markets is dwindling, particularly as demand for high-quality, Class A and trophy properties remains elevated. In markets with limited new construction and other prime space options, relocation activity may decelerate, leading to more stay-in-place transactions. Landlords with strong financial footing will be better positioned to retain tenants by offering space and building upgrades alongside competitive concession packages. Overall, the decline in new inventory will help correct the office market’s oversupply and support its stabilization.
Rowden: It will have a substantial impact on high-end tenants, particularly large occupiers. Already, the space available in the pipeline has declined almost 90% from where it was in 2019, so a large-block trophy tenant considering these under-development buildings has a much smaller universe of options to consider. In this environment, there will be more pressure on tenants to renew leases since relocation options are thin. We also expect to see strong rent momentum in some of these second-tier buildings that gain favor as higher-quality peers are leased up.
Marianne Skorupski: The limited supply pipeline will make companies prioritize what they view as the absolute necessities in their office search. We have had a lot of supply completed since 2022 that is still vacant and you can expect that space to become more attractive to companies wanting to be in new properties.
Smith: We are already seeing that occupiers in the market for large blocks of high-quality space are finding fewer and fewer options that will be available in 2026 and beyond. This should lead to further vacancy tightening in the best, top-tier office space. Additionally, it will likely push some of that occupier demand down the quality spectrum to other Class A space. The real opportunity is for well-capitalized landlords who have buildings in great locations that just need some upgrades or renovations. Those newly upgraded buildings will be attractive in a market that will have limited new construction.
CoStar: What is a common misconception that people outside of the real estate industry have about office buildings?
Skorupski: One of the most common misconceptions is that every worker was an in-office employee prior to the pandemic. The reality is that remote work existed long before the pandemic, and the so-called return-to-office conversation should keep that in mind.
Smith: There is a sense that all office buildings are struggling. However, Cushman & Wakefield Research’s data shows that over half of all U.S. office buildings have occupancy rates above 90%. And occupancy rates have been improving in more than 60% of office buildings.
Whelan: A common misconception is that a lot of the office market is vacant. While we are experiencing historically high vacancy, it is concentrated in a small percentage of buildings, many of which likely don’t have a viable future as office buildings and need to be converted or demolished. In fact, only 7% of buildings are less than 50% occupied.
Mangru: Another common misconception is that remote work has simply doomed the office market. However, as reflected in Avison Young’s Office Busyness Index, which tracks foot traffic in office buildings across the U.S., the number of workers returning to the office continues to rise each year. Additionally, the share of remote job postings is 28% lower than in 2022, while total office-using employment has increased.
Munos: One other common misconception is that office buildings with lights on and people coming and going must be performing well. In reality, many buildings have availability rates exceeding pre-pandemic levels, and an increasing number of landlords are undercapitalized and facing financial distress. It is critical for occupiers to look beyond a superficial assessment of a building and understand the owner’s underlying debt situation, financial stability and capital stack.
CoStar: How have the last five years changed what occupiers want in their workplaces? Are these changes likely to last?
Whelan: We are in the experience era. The office is no longer a necessity; rather, it is an option that employees should want to choose. I heard one executive mention that their job is to provide an experience that earns their employees’ commutes. That experience doesn’t just include the four walls of the workplace; it includes the journey to the office, the neighborhood offerings present around the office and in the building, and the form and function that the workplace itself provides. As consumers, when we get access to better experiences that enrich our lives it is unlikely we ever revert to old ways.
Bitner: It’s difficult to implement a return-to-office policy if that office itself is unappealing. Occupiers are prioritizing more amenities that meet workers' needs, such as gyms, daycare facilities, and restaurants. While companies are not reverting to traditional cubicle layouts, they have found that fully open-plan designs come with drawbacks. The preference now is for a mix of open aesthetics, improved acoustic control, and more designated spaces for calls and meetings. Safety also remains a key concern for occupiers as they consider workplace environments.
Mangru: Occupiers are willing to pay more for better space — high-end, amenitized buildings with wellness features, outdoor access, and hospitality-like services. For many tenants, features like natural light, high ceilings, modern HVAC for air quality, and tech-enabled meeting spaces have become baseline expectations. Many tenants also want fewer dedicated workstations and more collaborative areas for culture-building, meetings, and brainstorming sessions.
Munos: The pandemic has reshaped workplace priorities, with occupiers focusing on creating environments that naturally entice employees back to the office, optimize space efficiency, and align with broader business strategies. Employers are prioritizing workforce needs by designing workplaces that foster collaboration, reinforce company culture, and enhance productivity. As talent attraction and retention remain critical, these shifts in workplace strategy are expected to endure well into the future.
CoStar: What is the biggest current impediment to the office sector’s recovery?
Rowden: The slower recovery in capital market conditions is a limiting factor for the office market and has the potential to undermine progress if those conditions persist. Higher levels of distress in the market and disjointed valuations reduce the leasable universe for tenants since more owners will be unable to finance leasing costs or will be unable to execute leases at current market rates. Poor liquidity also extends the timeframe for a recovery in new supply. Office groundbreakings correlate very strongly with investment sales volume but on a two- to three-quarter lag. Thus, a recovery in the sales market could also be a signal that speculative development may start to return soon.
Skorupski: One thing that might hold it back slightly is unrealistic expectations by either landlords or tenants. Landlords still want top dollar for their office space, while tenants want perfect offices that check all the boxes. That's also why top-tier Class A space is already becoming very scarce in most markets.
Whelan: The biggest current impediment I see is the slowness of efforts to rebalance the market. The faster that defunct office spaces can be removed from inventory, the better our markets will be. As adaptive reuse happens, it will, in turn, create micro-markets with a more attractive overall use for inhabitants and visitors, raising the tide of remaining office buildings in the wake of change.
Bitner: The financial constraints that overleveraged landlords and bad debt create are a hidden force preventing a more meaningful adjustment in rents. This, in turn, has slowed the natural re-sorting of tenants into higher-quality buildings. On the demand side, the problem is that companies generally require less space per employee than previously. While businesses still need office space and demand will continue to grow, long-term demand growth expectations need to be adjusted downward.
Mangru: Another big challenge is that many tenants are leasing less space than before. The average lease size is 13.7% smaller than in 2019 and has trended downward each year since. Combined with the concentrated leasing activity in top-tier buildings, many markets are left with a large supply of older, less-amenitized office stock that is too expensive to repurpose. If cities and developers can successfully repurpose obsolete office buildings, we could see a stronger rebalance of supply and demand, ultimately helping the sector recover more quickly.
Munos: Uncertainty around hybrid work adoption and long-term space demand remains a big impediment to the office sector’s recovery. While office attendance has improved in many markets, utilization rates remain well below pre-pandemic norms. In-office mandates have been increasing, and required in-person days are expected to rise, which could support greater office demand. However, the pace of recovery will depend on how corporate workplace strategies evolve.
CoStar: What is the biggest reason to be bullish about the future of office?
Smith: The office continues to be central to the U.S. economy and how businesses operate. Most companies have implemented hybrid work models that average out to employees being in the office approximately three to four days per week. Moreover, occupiers that have shifted their workplace expectations over the past few years have almost universally moved to higher in-office expectations. This means the office is still critical to businesses, and the quality of that experience is critical to retaining talented employees and setting them up for success, both individually and with their teams.
Bitner: There are compelling office investment opportunities out there, yet relatively few are chasing them. In a commercial real estate market where many asset classes remain overvalued, office stands out as one of the few sectors that may be meaningfully undervalued.
Rowden: The normalization of office attendance underscores the fact that workplaces are an essential part of the built environment and that demand for them has not monumentally declined as a result of the pandemic. While remote work adoption has grown, it ultimately appears that the “new normal” is a moderate jump forward in the adoption of telework technologies that were already slowly being adopted by major corporations. In that process, companies have seen more starkly what aspects of a workplace are most accretive to employee experience, raising the standards for what workplaces look and feel like.
Skorupski: The office is still the central place for employees to gather and collaborate. While its design might be evolving, maintaining an environment that fosters productivity and meets employees’ needs for getting work done is good for both occupiers and building owners.