Could the Office Sector be Changing?

A Quick Dive into Trends, Challenges, and Opportunities
By Michael Bull, President, The Office Group, Bull Realty

The U.S. office market has been on a wild ride over the past few years. From pandemic-driven uncertainty and remote work trends to rising vacancies and wavering investor confidence, this sector has been under a microscope. But is a comeback in motion? I sat down with Phil Mobley, Director of Office Analytics at CoStar, for an eye-opening discussion on what’s really happening in the office sector. Spoiler alert: it’s not all doom and gloom—and in some cases, the market is showing real signs of life.

 

Fragmented Recovery: A Tale of Two Markets

Phil kicked things off by confirming what many of us have suspected: the national office market isn’t experiencing a uniform recovery. Instead, it’s fragmented. Major metros like New York City are bouncing back with strong leasing activity and rising in-office attendance. Manhattan, for example, is undergoing what Phil calls a “fairly normal recovery.” In contrast, cities like Chicago, Los Angeles, and even Atlanta are still struggling to regain their footing. Boston, once propped up by biotech demand, is facing new challenges as lab space demand cools. While some submarkets are stabilizing, others are still searching for a bottom.

 

Rents: Nominally Stable, But Concessions Are King

On paper, asking rents have held steady. But dig deeper, and the picture gets more nuanced. With inflation factored in, real rents are actually falling. Many landlords are “buying” occupancy with free rent, high tenant improvement (TI) packages, and flexible lease terms. In the strongest urban cores—think Park Avenue in New York—rents are rising modestly. But in older, less competitive buildings in secondary submarkets, landlords are losing pricing power.

 

Vacancy at Record Highs, But Not All Space Is Equal

National office vacancy has surpassed 14%—the highest rate on record and well above the 12.5% peak during the Great Recession. However, Phil was quick to point out that not all vacant space is competitive. Much of it sits in obsolete buildings that no longer meet modern tenant demands. Class A, well-located buildings are still seeing good activity, while outdated stock lingers on the market. This growing divide highlights the importance of asset quality and location more than ever.

 

What’s Behind the Growing Value Gaps?

Some office buildings are selling for just $60 per square foot—well below their $600 replacement cost. These deeply discounted deals present enormous upside for users and savvy investors willing to reposition assets, re-lease space, or convert buildings for alternate use (think residential, hospitality, or self-storage). That said, adaptive reuse is not for the faint of heart. Conversion costs are high, and construction is complex. Still, the risk-reward profile is attracting both opportunistic buyers and forward-thinking users and developers.

 

New Supply is Plummeting—And That Could Be a Good Thing

Construction starts for office projects are at historic lows. Since it takes 2–5 years to complete a major office building, we’re entering a window (2025–2030) of severely limited new deliveries.

This reduced pipeline should help the market rebalance. Less new space means existing properties, especially those with solid fundamentals, will face less competition—boosting lease-up prospects and supporting rent growth. Some are estimating that more office square footage will be demolished and converted than delivered this year!This has not happened in 35 years. Some markets could turn around faster than most people think.

 

Owner-Occupants and Tenants Are Shifting Strategies

Some companies are extending existing leases by a few years while they wait for more certainty. And many are downsizing—opting for smaller, more efficient footprints with better amenities and flexible workspaces. Tenants are also reevaluating trade-offs between location and quality. For some, a Class B building in a strong submarket, with the right upgrades, offers better long-term value than an expensive trophy tower. Some companies are bypassing the leasing market altogether and buying office buildings outright. The last eight office buildings around the southeast U.S. we have taken to market have been awarded to partial owner occupants. The occupancy solves some the vacancy issue and lenders love owner occupants, providing favorable financing.

 

Return-to-Office is Gaining Steam—Especially in NYC

Leasing activity is strong—over 100 million square feet was leased in Q1. However, the average lease size is 15% smaller than pre-pandemic norms, reflecting continued space optimization among tenants. Remote work is still part of the landscape, but in-office attendance is climbing. In New York City, foot traffic in office districts is now between 85–95% of 2019 levels—well above the national average of around 70%. Recent BLS data supports this trend. Over 75% of workers in finance, tech, and professional services are now spending at least some time in the office. Companies like Amazon, Starbucks, Dell, and Salesforce are among the employers requiring work in office. Recruiting, onboarding, training, culture, productivity, turnover, and cybersecurity are among the concerns contributing to this shift.

 

Transaction Volume is Rising, but Deal Size is Shrinking

Office investment sales are starting to thaw. In Q1 2025, transaction volume jumped more than 50% compared to the same quarter in 2024—though it’s still below pre-pandemic levels.

Last month we just took out a 185,000 SF tower that had been on the market for a couple years by a national firm. We secured 58 registered buyers in 24 hours and sold it in two weeks at full guidance price. Plus, there is a backup buyer in place above guidance.

 

A Market That Rewards Skill and Strategy

So, what does it all mean? Phil summed it up perfectly: the office market has become an “alpha market.” You can’t just ride the wave anymore—you must be better, whether you’re holding, buying, or selling. Better at marketing, sourcing deals, underwriting risk, repositioning assets, and understanding tenant behavior. For investors, brokers, and users, this environment presents a rare window of opportunity. With limited new supply on the horizon and a growing flight to quality, those who move now—with the right strategy—can capture real upside.

 

Final Thoughts

The office sector may be battered, but it’s far from broken. As return-to-office continues to gain traction, tenants rethink their needs, and supply dwindles, the sector is poised for a new cycle of transformation and growth. Want help navigating the office market? Whether you’re an office building owner, company that uses office space, an investor, or a lender evaluating options—reach out to us. We can let you know what a property will bring with proper marketing and design a plan to maximize value.

 

Michael Bull, CCIM

President, The Office Group

CEO, Bull Realty

404-876-1640 x 101

Michael@BullRealty.com