Key Takeaways:
- The national office vacancy rate was 19.4% in May, up 160 basis points year-over-year, with occupancy unlikely to rise in near future
- The average U.S. office listing rate was $33.15 per square foot in May, increasing 4.8% year-over-year
- Office construction pipeline continued to shrink, with 41.5 million square feet of office space currently under construction
- Los Angeles logged over $1 billion in office sales through May, though average sale prices declined more than 30% from 2022
- Austin recorded the second-highest vacancy rate in the nation at 26.7% in May while leading the South in office development with 2.7 million square feet underway
- Chicago remained the top investment market in the Midwest, with $794 million in office sales year-to-date, despite having the lowest average sale price among major U.S. markets ($59 per square foot)
Trends & Industry News
Cities Push for Office Conversions
Record office vacancies are creating opportunities for building owners to repurpose vacant spaces and for cities to combat housing shortages.
The national vacancy rate remained high in May at 19.4%, a 160-basis point increase over the last year, according to our U.S. office market report. Currently, over 149 million square feet of office space is proposed for conversion, 125 million of which have been proposed since the start of 2022. Conversions proposals have grown every year this decade and 2024 saw 48 million square feet proposed.
Yet there is no “one size fits all” solution for converting a vacant office, with methods varying based on market conditions and project specifics. Yardi’s revamped Conversion Feasibility Index (CFI) scores buildings across a variety of factors, with a Tier I building being a top candidate for conversion and Tier II possessing strong potential but possibly requiring some modifications or adjustments.
Manhattan has one of the highest office occupancy rates in the nation, but its dense nature guarantees it won’t be long before vacant spaces will be eyed for other uses. Currently, 23 million square feet of office space in the city is proposed for conversion. According to the the CFI, 19.5% of Manhattan’s office stock is a Tier I candidate for conversion while 34.6% is Tier II. To expedite conversions, the city established the Office Conversion Accelerator program, which provides a single point of contact with the city government to assist owners with zoning and permitting. A GFP Real Estate property at 222 Broadway, originally built in 1961, started construction last month to convert 770,416 square feet of office space into 798 apartments and commercial space, anticipated to complete by May 2027.
“With the destruction of office values being realized, it now is up to cities to incentivize conversions to maximize potential, or at the very least, reduce the red tape and regulations that make an already difficult project even harder.”
Peter Kolaczynski, Director, CommercialEdge
San Francisco has one of the nation’s highest vacancy rates at 28.4% and office attendance averaging 43%, according to Kastle’s Back to Work Barometer. It is also one of the top markets in Yardi’s CFI with 9.2% of space rated as Tier I and 25.1% as Tier II. Despite these factors, there are currently only 1 million square feet of proposed conversions on the market.
San Francisco is looking to increase this number with its Commercial to Residential Adaptive Reuse Program, which includes tax waivers and fee removals. The city recently approved creating a downtown revitalization financing district, which will incentivize conversions by reinvesting the increase in property tax revenue to offset development costs. The New Humboldt Residences, a property located at 785 Market Street, is currently in the process of being converted into 120 units of housing.
Listing Rates and Vacancy
Northern California’s Struggles Increase
The national average full-service equivalent listing rate was $33.15 per square foot in May, down 19 cents over the previous month but up 4.8% year-over-year.
Top Listings by Metro Area: May 2025
The national office vacancy rate was 19.4%, down 30 basis points from the previous month, but up 160 basis points year-over-year. Rates are unlikely to decrease anytime soon, with office utilization rates plateauing and weak job growth in office-using employment.
Despite some high-profile lease signings and speculation that a burgeoning AI sector would drive a recovery in the region’s office sector, Northern California is still struggling with high office vacancies. San Francisco has seen its vacancy rate increase 330 basis points in the last 12 months, sitting at 28.4% in May, while the Bay Area’s 25% rate marks an increase of 510 basis points over the last year.
Supply
Boston’s Life Science Sector Weakens
Nationally, 41.5 million square feet of office space was under construction as of May, according to our U.S. office market report, representing 0.6% of the stock.
The office supply pipeline’s contraction continued in 2025, as the 11.3 million square feet of completions during the first five months of the year far exceed the 4.2 million square feet that has broken ground.
Office Space Under Construction (Million Sq. Ft.)
Boston has had the nation’s largest office supply pipeline by square footage in recent years, driven by the life science sector. Nearly three-quarters of the market’s pipeline are life science properties, as Boston continues to build out proprieties that began the development process during the life science boom after the pandemic.
However, in 2025, things are much shakier for the sector. Private capital funding for life science firms has undergone a pullback in recent years, and cuts to NIH funding will likely reduce lab space demand from the market’s universities. Only one building, the 350,000-square-foot third phase of Innovation Square, has broken ground in the Boston market in the last twelve months.
Transactions
Price Declines in Los Angeles
Across the U.S., a total of $19.6 billion in office sales was recorded through May, with properties trading at an average of $194 per foot.
2025 Year-To-Date Sales (Million)
Los Angeles office sales have totaled over $1 billion, but the average sale price in the market is down more than 30% from 2022. Fenway Capital Advisors paid $130 million for The Entrada in Culver City, about $400 per square foot for the 11-story building. While the sale marks the highest sale price in the market through May, it is still less than the $142 million loan that a joint venture between Lincoln Property Company and Broad Street Principal Investors took to develop the property.
Western Markets
SoCal Markets Lead the Region in Office Development
Western markets continued to see high office vacancy rates throughout May, with most of them remaining above the national average of 19.4%. The Bay Area recorded the fourth-highest vacancy rate in the nation at 25%, following a sharp 500-basis-point increase year-over-year. Similarly, Portland witnessed a 490-basis-point rise in vacancy from a year ago to a 21.4% rate.
Office asking rents also remained elevated across Western markets in May, with most continuing to outpace the national average of $33.15 per square foot. San Francisco led the region in rent growth, posting a 3.7% year-over-year increase that pushed the average asking rate to $63.01 per square foot— the second-highest in the nation. Meanwhile, more affordable markets like Portland, Phoenix and Denver stood below the national benchmark. Notably, Portland recorded one of the lowest average asking rents among major U.S. markets, at $28.45 per square foot, despite a 3.5% annual increase.
West Regional Highlights
In May, the Bay Area surpassed San Francisco to become the priciest office market in the West, with assets trading at $356 per square foot—second only to Manhattan on a national level. The Bay Area also stood out by totaling over $2 billion in office sales, ranking third nationally in year-to-date sales volume. Los Angeles maintained its position as one of the most expensive markets in the U.S., with office space trading for an average of $281 per square foot. The market also recorded more than $1 billion in sales year-to-date. At the opposite end, Seattle continued to lag behind, with office assets trading at just $124 per square foot—well below the national average of $194—and logging one of the smallest sales volumes in the U.S. at only $158 million year-to-date.
Office construction in Western markets remained heavily concentrated across SoCal, with San Diego and Los Angeles leading the region with over 2.1 million square feet underway each. While San Francisco had previously ranked as the national runner-up for office development activity, it was overtaken in May by both SoCal hubs and two major Texas markets, Dallas–Fort Worth and Austin. Still, San Francisco kept one of the highest combined shares of office space under construction and planned, at 5.1% of total stock—highlighting sustained long-term interest.
Midwestern Markets
Investment Activity Picks Up in Chicago
Midwestern markets continued to rank among the nation’s most affordable for office investment in May. While office space in Chicago traded at just $59 per square foot, the lowest sale price among top U.S. markets, the market recorded $794 million in total sales—tripling its volume from the same period last year. The Twin Cities followed a similar trend, with assets selling at a modest $66 per square foot while recording over $221 million in year-to-date sales, up from $188 million a year prior.
The Twin Cities stood out as the region’s most stable market in May, being the only one with a vacancy rate below the national level, at 17.2%, following a 100-basis-point increase year-over-year. Meanwhile, Detroit continued to be the most challenged office market in the Midwest, posting a 25% vacancy rate, the fifth-highest nationwide.
Midwest Regional Highlights
Midwestern office markets remained the most affordable nationwide in May, with average asking rents well below the national average of $33.15 per square foot. Detroit ranked as the least expensive office market, with rents at $21.60 per square foot. Chicago maintained a relatively flat rate year-over-year at $27.88 per square foot.
Office development remained limited across Midwestern markets in May, highlighting the region’s trend of slow-paced construction activity. Chicago led the Midwest with 792,000 square feet underway, though that figure marked a decline from over 1 million square feet in progress the previous year. The Twin Cities saw a modest uptick in development activity, reaching 595,000 square feet of office space under construction. Meanwhile, Detroit’s pipeline remained largely unchanged from last year, further underscoring the region’s overall restrained approach to new office supply.
Southern Markets
Austin Sees Strong Construction Activity Amid Elevated Vacancy Rates
Office rents across Southern markets showed varied trends in May, with the majority falling below the national average. Florida markets like Orlando and Tampa remained among the most affordable nationwide, posting asking rents of $28.03 and $29.50 per square foot, respectively. On the higher end, Miami continued to be the South’s priciest office market and the third-most expensive in the country, with average rents reaching $57.71 per square foot. Meanwhile, Houston experienced downward pressure on pricing, with rents declining 3.5% year-over-year to $28.53 per square foot.
Austin slipped to third place regionally in May in office sale prices, with assets trading at $221 per square foot. Washington, D.C., edged ahead with $223 per square foot, while Miami continued to lead the region with $231 per square foot. These markets were the only ones in the South with rates above the national average of $194 per square foot. Washington, D.C., stood out with the highest sales volume in the region and second-highest nationwide, logging $2.6 billion year-to-date. Houston was next in the region with $1.20 billion. However, despite its strong investment activity, Houston remained one of the most affordable office markets in the country, with assets trading at just $117 per square foot and showing minimal price appreciation compared to a year ago.
South Regional Highlights
Southern markets reported stark contrasts in development activity during May. Texas hubs continued to dominate the national development landscape, with Dallas–Fort Worth (3.2 million square feet) and Austin (2.7 million) posting the largest pipelines nationwide, behind only Boston. In contrast, other Southern markets saw slower activity. Orlando’s pipeline held steady year-over-year at 375,000 square feet, while Tampa experienced one of the steepest declines nationally, with its active pipeline shrinking to just over 300,000 square feet—roughly a third of what it was in May 2024.
Southern markets continued to follow mixed trends in May, with some surpassing the national office vacancy rate of 19.4%, while others remained well below it. Tampa continued to see high occupancy levels, finishing the month with a 16.5% vacancy rate despite a 340-basis-point year-over-year increase. At the other end of the spectrum, Austin recorded the second-highest vacancy rate in the nation at 26.7% after a 340-basis-point annual increase. Dallas–Fort Worth (23.5%), Houston (21.7%), and Atlanta (19.9%) also exceeded the national average, rounding out the list of Southern markets with rising vacancies.
Northeastern Markets
Philadelphia Remains Among Most Affordable Office Markets Nationwide
Boston continued to dominate the nation in office construction during May, with nearly 6 million square feet underway, equal to 2.3% of its total stock. Manhattan also maintained a sizable pipeline of 1.6 million square feet despite a year-over-year contraction of over 1 million square feet. New Jersey followed a similar trajectory, recording a sharp slowdown in development compared to last year, going from 2 million square feet to only 810,000 square feet of office space underway.
All Northeastern markets posted vacancy rates below the national average of 19.4% during May. Philadelphia came closest to the national benchmark with a 19.2% vacancy rate following a 390-basis-point increase year-over-year. In contrast, New Jersey showed greater stability, logging one of the region’s smallest increases—just 140 basis points—bringing its vacancy rate to 18.6%.
Northeast Regional Highlights
During May, Manhattan retained its position as the nation’s most expensive office market, with asking rents averaging $68.08 per square foot—despite a 4.5% annual decline. Boston and New Jersey also experienced softening asking rents, with year-over-year decreases of 1.4% and 2.4%, respectively. Meanwhile, Philadelphia remained one of the most affordable major office markets in the U.S., with asking rents at $31.17 per square foot, staying flat year-over-year.
Philadelphia also recorded the region’s lowest average sale price at just $100 per square foot, alongside the smallest year-to-date office sales volume of $154 million. Conversely, Manhattan and Boston upheld their positions as the region’s top-performing office markets. Both cities saw average sale prices exceed the national benchmark of $194 per square foot, with assets trading at an average of $448 per square foot in Manhattan and $237 per square foot in Boston. Manhattan continued to be the nation’s top office investment hub, logging $2.8 billion in sales year-to-date—marking a dramatic rise from just $570 million during the same period last year.
Office-Using Employment
Charlotte Outpaces the Pack
Office-using sectors of the labor market decreased by 3,000 jobs in May, with the losses concentrated in the Professional and Business Services sector, which shed 18,000 workers in the month. The gains in Financial Activities, which added 13,000 jobs and Information (2,000 jobs), were not enough to offset the losses. On an annual basis, office-using sectors have grown by just 1,000 jobs over the last twelve months.
Office Using Employment
Charlotte has been one of the nation’s few bright spots for office employment. Among the 25 largest office markets, Charlotte has claimed the top spot for office job growth every month so far this year. In April, metro-level employment data—which trails the national release—showed Charlotte with a year-over-year growth rate of 3.2%, more than twice that of any other top market. Charlotte has been a hot spot for corporate relocations in recent years, leading to office job growth at a time when many other markets are experiencing declines.
Methodology
This report covers office buildings 25,000 square feet and above.
CommercialCafe collects listing rate and occupancy data using Yardi Matrix methods.
Listing Rates — Listing Rates are full-service rates or “full-service equivalent” for spaces that were available as of the report period.
Vacancy — The total square feet vacant in a market, including subleases, divided by the total square feet of office space in that market. Owner-occupied buildings are not included in vacancy calculations.
A and A+/Trophy buildings have been combined for reporting purposes.
Stage of the supply pipeline:
Planned — Buildings that are currently in the process of acquiring zoning approval and permits but have not yet begun construction.
Under Construction — Buildings for which construction and excavation has begun.
Office-Using Employment is defined by the Bureau of Labor Statistics as including the sectors Information, Financial Activities, and Professional and Business Services. Employment numbers are representative of the Metropolitan Statistical Area and do not necessarily align exactly with CommercialCafe market boundaries.
Sales volume and price-per-square-foot calculations for portfolio transactions or those with unpublished dollar values are estimated using sales comps based on similar sales in the market and submarket, use type, location and asset ratings, sale date and property size.
Market boundaries in the CommercialCafe office report coincide with the ones defined by the CommercialCafe Markets Map and may differ from regional boundaries defined by other sources.
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