Office vacancy rates decline amid supply slowdown and regional divergence

The US office leasing market shows signs of stabilisation with decreasing vacancies and uneven regional recovery, driven by subdued new supply, conversion trends, and sector-specific slowdowns, notably in life sciences.

The national office leasing market appears to be settling after a turbulent period, with a February snapshot from CommercialCafe suggesting vacancy rates are moving lower. According to CommercialCafe, overall vacancies stood at 17.6% in February, a 200 basis-point fall from a year earlier; other industry trackers paint a more mixed picture, with some reporting higher national vacancy readings in recent months.

A major driver of the improved occupancy statistics cited by CommercialCafe is a cooling pipeline of new office supply and a wave of conversions of underused properties to residential uses. Industry construction data show nonresidential starts remained steady into early 2025 even as overall new development cooled, and major market-level pipelines remain concentrated in a handful of metros.

Average asking rents have shown only modest movement even as vacancies shift. CommercialCafe recorded a national full-service equivalent listing rate near $32.79 per square foot in February; by contrast, other market monitors reported slightly higher national asking-rate averages later in the quarter, underscoring regional divergence in rent trajectories.

Transaction volumes and pricing continue to be geographically uneven. Manhattan has led activity so far in the year, with more than $1.6 billion of office sales recorded in the period cited by CommercialCafe, while the San Francisco Bay Area and Miami also logged significant deal flow. At the same time, Realtors’ association data show pockets of positive absorption in New York and Sacramento, signalling that demand is returning to certain core CBDs even as other metros lag.

Regional splits remain stark. Western and Northeastern markets generally sustain asking rates above the national average, with San Francisco among the most expensive locales despite an elevated vacancy backdrop; Midwest and Southern markets continue to offer comparatively lower rents, with Detroit cited as among the most affordable in major Midwestern markets.

The pandemic-era boom in life sciences construction has started to unwind. Yardi Matrix reporting shows new life-sciences starts have fallen materially from a 2022 peak, and Peter Kolaczynski, director of Yardi Research, told the CommercialCafe report that “Life sciences development overextended a bit coming out of COVID.” He argued the slowdown creates space for the market to absorb the oversupply of newly delivered lab product over the coming decade.

Not all datasets align on the scale of the sector’s problems. Some analyses placed national office vacancy rates nearer to 20% by late 2025 and highlighted particularly acute oversupply on the West Coast, with San Francisco, Seattle and parts of Los Angeles recording some of the highest vacancies. Government housing and broader construction statistics, however, show a steadier pattern in other segments of the built environment, emphasising that the office correction is only one strand of a complex market.

Looking ahead, development and absorption appear likely to remain concentrated in a small set of major metros. CommercialEdge data identify Boston, Manhattan, Dallas and Los Angeles as the only markets with more than 2 million square feet of office construction underway in the period referenced, a pattern mirrored by construction industry reporting that showed steady nonresidential starts even as other sectors cooled. That concentration suggests that recovery and repurposing will be uneven, benefitting some downtowns while smaller and suburban markets continue to recalibrate.

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Source: Noah Wire Services