Just a couple of years after widespread downsizing, offices are back in fashion. Per JLL, positive net absorption has now run five quarters straight, and tenants occupied 6 million square feet over the third quarter. Companies are also upsizing, with the average leased footprint running 13% larger than before, a sharp turn from the pandemic-era contraction.
Builders are not refilling the pipeline as fast as demand is returning. Only 3.5 million square feet of new space opened in the third quarter - essentially the same near-record low as the prior quarter. Meanwhile, 9.6 million square feet left the market via conversions or redevelopments.
In total, the national office inventory has decreased by 45 million square feet from the end of 2023. With just 23 million square feet under construction, JLL calls the current rush for top options a "flight to scarcity," and rents are reacting.
Effective rents for first-generation trophy space have now risen by more than 20% relative to the third quarter of 2025. With limited trophy options left, more tenants are eyeing second-generation buildings, where rents are up 10% from a year ago.
Office demand returning would reverse one of the decade's biggest property stories. Market Briefs covers commercial real estate free every morning.
Local stories vary, but tech is doing a lot of the heavy lifting, with San Francisco and Austin showing the strongest net absorption. Sun Belt demand is holding up, gateway markets have seen leasing volume climb 13% from a year earlier, and smaller tertiary cities have rebounded to around 95% of their 2019 leasing levels.
"Office, which is having a real renaissance right now … If you own, if you bought that 18, 24 months ago, you've done incredibly well in office in San Francisco and New York," said Willy Walker, CEO of Walker & Dunlop, on CNBC's Closing Bell Overtime. He added that the current year's building activity is running at roughly 9% of its typical yearly supply. It might be a great time to start projects slated for delivery in two to three years, but he says equity capital is scarce, which could keep supply tight and push rents even higher.
Tightening supply changes the math for landlords and lenders alike. Get the free Market Briefs daily newsletter and follow it.
