The office market is beginning to show signs of life as vacancy rates shift into positive office absorption of square footage. Still, this recovery in office demand is not evenly distributed across the country.
“Economic trends—whether it’s interest rates, job growth or inflation—have a direct impact on how businesses and investors approach commercial properties,” said Nadia Evangelou, senior economist and director of real estate research at the National Association of REALTORS®, who shared insights on the office and commercial real estate sectors during the Real Estate Forecast Summit last week. “In the meantime, commercial real estate has been through a roller coaster ride over the past year.”
Encouraging signs of improvement are evident in the office sector, with about 2.3 million square feet of office space in the Southeast absorbed in the first quarter of the year—a notable shift after years of negative office absorption. However, vacancy rates remain historically high at 14% nationwide, and total absorption lags far behind the pre-pandemic average of 75 million square feet annually.
Regional performance of office space varies significantly. While some metro areas are exceeding pre-pandemic office absorption levels, others continue to struggle with persistent vacancies:
- Better than pre-pandemic: 25% of metros, including New York, New Haven, Conn., and Columbia, S.C., report stronger office absorption.
- Better than a year ago: 52% of metros, including Dallas-Fort Worth, Philadelphia, and Sacramento, have seen higher office absorption.
- Still negative: 46% of metros, such as Boston, Washington, D.C., and San Francisco, continue to experience negative office absorption.
“The trajectory of the office market depends substantially on local dynamics. Some areas are thriving, others are stabilizing, and many are still facing challenges,” Evangelou said, noting that remote work, corporate downsizing, and oversupply continue to weigh on office recovery.
Markets with strong healthcare and education anchors—like Columbia, S.C., which recorded over 850,000 square feet in net office absorption—are recovering fastest in 2025.
A related concern is the government’s management of its vast office space portfolio. According to the General Services Administration, the U.S. government controls about 8,500 buildings, with 21% owned and the rest leased. How these government office properties are sold or repurposed could shape market trends.
While the office sector struggles, the multifamily market has emerged as a stronger performer, with more than 550,000 units absorbed in the past year. However, despite high demand, rent growth has stayed flat at about 1% due to a pandemic-era construction boom that brought significant new apartment supply.
Like the office market, multifamily performance also varies by region. Some metros, like Chicago, Omaha, and Madison, show strong rent growth, while others, including Austin, Denver, and Phoenix, are seeing rent declines due to oversupply.
