Vacancy Rates Begin to Slip & Construction Starts Level Off as Coworking Maintains Competitive Edge

Key Takeaways:

• The national office vacancy rate was 18.4% in December, following a decrease of 140 basis points (bps) year-over-year (Y-o-Y).
• The national office listing rate averaged $32.86 per square foot in December, which was less than 1% lower compared to values recorded 12 months prior.
• The office supply pipeline remained modest at the start of 2026 with nearly 31 million square feet of office space currently under construction.
• Manhattan, N.Y., topped the list for sales with a total of $7.8 billion closed in 2025, followed by the Bay Area ($4.7 billion) and Washington, D.C. ($3.8 billion).
• Manhattan, N.Y.; Miami; and Los Angeles averaged some of the lowest vacancy rates among top U.S. office markets in December.
• Western and Northeastern markets were home to most of the leasing rates above the national average, while Midwestern and Southern markets claimed some of the most affordable office asking rates last month.
• Boston; Manhattan, N.Y.; Dallas; and Los Angeles had the most active office pipelines and were the only cities to surpass 2 million square feet of new office space under construction at the close of 2025.

Trends & Industry News

Coworking Footprint Grows, Office Vacancy Slips from Peaks of 2025

In 2025, the trend of vacancy rates rising sharply across most of the country began to break. Since peaking in March of last year, the national vacancy rate decreased 150 bps to reach 18.4% at the close of the year.

Leading the way in this respect has been Manhattan, N.Y., where office vacancy fell by more than 400 bps from its previous peak in 2023. Other markets are beginning to follow suit after hitting their vacancy peaks in late 2024 and early 2025. Although vacancy will likely continue to decrease, it’s not expected to reach pre-COVID levels any time in the near future as the office-using paradigm has shifted significantly from the relationship between workers and the office that existed before 2020.

To that end, last year was a good year for coworking as more than 1,000 locations were added to the sector, increasing its total share in the national office market to roughly 2.2%. In fact, coworking has proven to be a competitive alternative to traditional office spaces because it responds well to the needs of companies that are less able to commit to the costs of a traditional, long-term office lease, but that are also not planning to operate in a fully remote work environment.

This growing success of coworking also presents an opportunity for owners of large office properties who have struggled to fill vacant spaces in recent years: By transitioning to coworking, they can attract tenants by partnering with operators and management services experienced in more flexible office leasing models.

“Increases in investment activity and occupier demand, coupled with a leveling off or reduction of total office space, has led to more office optimism than we have seen since 2020. Significant challenges remain in the form of physical occupancy, but we’re expecting improvement in more locales than just New York City.”

Peter Kolaczynski, Director, Yardi Research

Listing Rates & Vacancy

Vacancy Rates Decreasing in Metros Outside Manhattan, N.Y.

The national average full-service equivalent listing rate for office space was $32.86 per square foot in December, which marked a slight slip of 0.8% Y-o-Y. Meanwhile, the national vacancy rate dipped 140 bps compared to the previous year to rest at 18.4% at the close of 2025.

Of the 25 largest markets we analyzed, 17 saw decreases in their vacancy rates during the last year. While the level of vacancy seems to have somewhat stabilized in some markets, others continue to see fluctuation. Namely, Manhattan, N.Y.; San Francisco; and the Bay Area — three markets that have consistently topped the list in terms of asking rates and office sale trends — have seen vacancy drop by 300 bps or more in 2025.

Specifically, San Francisco office vacancy decreased 370 bps to reach 25.2% at the close the year. Nearby, the Bay Area saw a 320-bps drop in vacancy last year, averaging 23.2% in December. On the opposite coast, Manhattan, N.Y., wrapped up 2025 with the lowest vacancy rate among the top markets analyzed for this report (13.6%), following a year-over-year drop of 300 bps.

Transactions

Chicago Sale Price Per Square Foot Continues 5-Year Downward Trend

In December, year-to-date office sales exceeded $53 billion across transactions, averaging $192 per square foot. Notably, despite continuing to lag behind the peaks of previous office sales booms, the sale price per square foot of office space in the U.S. has been slowly climbing to approach Q2 2020 levels.

Among the top 25 markets we analyzed for this report, Chicago; Portland, Ore.; and Philadelphia had the lowest prices and were the only markets to average less than $100 per square foot across sales closed here in 2025.

Conversely, on the higher end of the spectrum, Manhattan, N.Y., topped sales in the nation at a comfortable distance ahead of second place (California’s Bay Area), both in terms of total office sales value in 2025 (nearly $7.8 billion) and sale price per square foot ($498).

Not to be outdone, 119 transactions closed in the Bay Area office market in 2025, which represented the highest yearly sales activity since 2021, according to Yardi Research data. These sales averaged $392 per square foot, which marked a 35% Y-o-Y increase — the first sale-price boost in four years for office space in the Bay Area.

Supply

Decline in Construction Starts Levels Off in 2025

As of December, nearly 31 million square feet of office space was under construction in the U.S. markets we tracked for this report. Per Yardi Research data, this represented 0.4% of stock and marked a 44% Y-o-Y drop from the roughly 55 million square feet that was under construction at the start of last year.

Accordingly, construction starts appear to have leveled off in 2025, following a steady decline in the last few years. More precisely, Yardi Research data tracked 13.2 million square feet of office starts in 2025, which was not far off from the 13.5 million square feet of starts tracked in 2024.

As corporations embrace the hybrid work model more firmly and office demand remains more concentrated around the higher-quality assets in the office sector, the prospect of funding for new projects remains limited. What’s more, as many tenants have shifted their attention to smaller, amenity-laden, jewel-box properties, some large office buildings lose appeal and may continue to struggle to fill vacant space.

Western Markets

Los Angeles & San Diego Dominate Development in Region; San Francisco & Bay Area Top Leasing Rates, Sale Prices

Vacancy rates were above the national average of 18.4% in December in the majority of the Western U.S. markets that we surveyed for this report. With the exception of Los Angeles (14.9% vacancy) and Phoenix (17%), all markets in this group averaged vacancy rates above 21% last month.

Among them, Seattle office space retained the highest vacancy rate in the region, averaging a little more than 27% in December. Next, San Francisco was again second on this short list with vacancy averaging 25.2% last month. Then, Denver and California’s San Diego and Bay Area each had a little more than 23% vacancy in their respective office sectors.

Likewise, asking rents for office space in San Francisco remained at the top of the regional list at the close of the year. Supported by performance across the tech ecosystem around the urban core, rates here averaged a little more than $63 per square foot in December, which was nearly double the national average of $32.86. Neighboring Bay Area office space was the second-priciest in the region last month with asking rates slightly exceeding $53 per square foot, on average — the only other Western U.S. market on our list where average rates surpassed $50 per square foot in December.

Not far behind, Los Angeles (#3) and San Diego (#4) each averaged more than $45 per square foot and closed out the standout block of California markets at the top of the list for rents.

 

Otherwise, Portland, Ore.; Denver; and Phoenix remained the only large markets in the Western U.S. where office asking rates were below the national average in December. Each landed below $31 per square foot.

When looking at total market office sales in the region, the Bay Area retained its top spot. Transactions closed here in 2025 amounted to more than $4.7 billion, which was nearly $1.9 billion more than the next-best-selling market in the region: Los Angeles office space saw roughly $2.9 billion in sales closed last year.

Elsewhere in the Western U.S., San Francisco, San Diego, Phoenix, and Denver were the only other markets in the region to see office sales surpass $1 billion each in 2025.

During that same timeframe, the Bay Area also stood out for sale prices: In 2025, office space here commanded the highest average sale price per square foot in the Western U.S. At $392 per square foot, office space in the Bay Area sold for $200 more than the national average and ranked comfortably ahead of San Francisco, which came in second at a significant distance, averaging $286 per square foot last year.

California markets also led the region in terms of development last month. In particular, Los Angeles had more than 2 million square feet under construction, followed by San Diego with roughly 1.2 million square feet. Together, they accounted for more than half of the current development across the largest markets in the region.

At the start of 2026, each of the other Western U.S. markets we analyzed had less than 1 million square feet of new office space under construction. Otherwise, Phoenix office space currently in development made for the third-largest pipeline in the region (nearly 824,000 square feet), followed by development in the Bay Area (more than 710,000 square feet).

Midwestern Markets

Twin Cities Claims Lowest Vacancy as Chicago Tops Asking Rates & 2025 Sales

The top Midwestern U.S. office markets we looked at for this report remained some of the most affordable in the country in December, both in terms of average listing rate and for-sale price per square foot.

First, Detroit office space remained the most accessible in this group with asking rents here averaging a little more than $21 per square foot. Similarly, the average asking rate for office space in Minneapolis; St. Paul, Minn.; and the wider Twin Cities submarkets rested at a little more than $27 per square foot, following an increase of 4.3% Y-o-Y. Additionally, occupancy levels in the Minnesota market last month also kept vacancy at roughly 18% — the only large market in the region to finish below the national average of 18.4% at the close of last year.

Unsurprisingly, Chicago office space was the priciest to lease in the region last month with asking rents averaging $28.30 per square foot. At the same time, occupancy levels here averaged an 18.6% vacancy rate that was slightly above the national average.

 

As one might expect, the highest regional office sales total in 2025 was in Chicago, which is the largest office market in the Midwest. However, the $1.1 billion worth of office space that sold here last year changed hands for the lowest price among top markets in the region — an average of $65 per square foot, which was roughly one-third of the national average of $192.

Additionally, construction in the region cooled significantly as 2025 wrapped up with a combined total of a little more than 800,000 square feet of office space under construction across the Midwestern U.S. markets we analyzed.

Southern Markets

Dallas, Austin, Miami Carry Bulk of Development in Region as Washington, D.C. Ends 2025 With Highest Sales Total

In the South, Miami; Austin, Texas; and Washington, D.C. topped the list in terms of asking rents. These were also the only Southern U.S. markets to see full-service equivalent listing rates averaging more than $40 per square foot in December. Coming in fourth, Atlanta wrapped up the list of Southern U.S. markets to see asking rates above the national average of $32.86 per square foot.

At the other end of the ranking, office space in Orlando, Fla., and Houston had the lowest asking rents in the region and were the only markets to average less than $30 per square foot.

Meanwhile, a look at office sales showed that four of the Southern U.S. office markets we analyzed for this report recorded totals higher than $1 billion in 2025. First, Washington, D.C. had the highest year-to-date sales total as office transactions here amounted to nearly $3.8 billion last year. During that time, office space in Washington, D.C. changed hands for an average of $172 per square foot.

Next, Dallas office space sales added up to a little more than $3 billion and represented the second-highest year-to-date total in the region last month: In 2025, office space in the Texas metroplex changed hands for an average price of $312 per square foot (second only to Miami).

Also in Texas, sales of office space in Houston added up to more than $1.6 billion in transactions and made for the third-largest total last year. To the east, office space in Atlanta was fourth as transactions closed here last year added up to $1.4 billion.

 

Looking at leasing data, office space in Miami had the highest average full-service equivalent listing rate in the region in December at a little more than $55 per square foot. The only other markets in this regional group to see lease rates average more than $40 per square foot last month were Austin, Texas, and Washington, D.C. Office space in Austin asked an average of nearly $46 per square foot, whereas asking rates for Washington, D.C. office space averaged a little more than $40 per square foot at the close of 2025.

Notably, Austin also had the highest vacancy rate in the region last month (exceeding 27%), followed by Dallas (roughly 21%). Houston (20.2%) and Orlando, Fla. (20%), were the only other Southern U.S. markets in our analysis to see vacancy at or higher than 20% last month.

As for construction, data showed that the two most popular Texas markets also carried most of the office pipeline in the region: In December, more than 2.2 million square feet of office space was in development in Dallas, and nearly 1.5 million square feet was under construction in Austin.

The third-most productive in this respect was Miami, which was also the only other Southern U.S. market with more than 1 million square feet underway. Together, office development in these three markets accounted for nearly 16% of the national development pipeline total at the start of 2026.

Northeastern Markets

Boston & Manhattan Office Construction Make Up 22% of National Pipeline, NYC Leads Leasing Rates & Sales

In December, Manhattan, N.Y., had the highest average listing rate in the region at nearly $68.40 per square foot. Boston followed as the second-priciest listing market in the Northeast with asking rates here averaging close to $48 per square foot last month.

At the same time, asking rents for Philadelphia office space were nearly $31.70 per square foot, making it the only Northeastern U.S. office market to ask less than the national average of nearly $33 per square foot at the close of the year.

Looking at construction, each of the four largest office markets in the Northeast had more than 1 million square feet of new office space in development. Together, they accounted for nearly 30% of the national pipeline at the start of 2026.

Boston led supply in the region as office projects in development here totaled a little more than 4.4 million square feet. Next, the Manhattan, N.Y., office space pipeline was the second-largest in the region at the start of this year with roughly 2.3 million square feet under construction. Combined, these two Northeastern U.S. markets accounted for nearly 22% of the country’s total pipeline of nearly 31 million square feet at the close of 2025.

 

An analysis of office sales saw transactions in Manhattan, N.Y., amounting to more than $7.7 billion — the largest 2025 sales total in both the region and the country. Last year, office properties in the Big Apple traded for an average of $498 per square foot. This was more than double the national average of $192 per square foot and placed the New York market comfortably ahead of the rest for priciest office market in the country.

Next, Boston and New Jersey had the second- and third-largest 2025 sales totals, respectively, following Manhattan at quite a distance in the Northeastern U.S. region. Sales of Boston office space since last year added up to more than $1.6 billion and averaged $184 per square foot, whereas transactions of office space in New Jersey tallied nearly $1.3 billion in 2025 at an average sale price of $152 per square foot.

Office-Using Employment

Charlotte, N.C., Stands Out for Office Employment Growth

Although releases of employment data from the Bureau of Labor Statistics have resumed following the government shutdown, there are still some delays for which we can rely on private-sector employment research.

To that end, ADP data showed that employment in office-using sectors declined by a combined 35,000 jobs in December, led by losses in professional and business services, as well as in the information sector. At the same time, financial activities gained 6,000 jobs. Looking at labor data year-over-year, office-using sectors overall gained about 42,000 jobs, which marked a modest 0.1% increase in 12 months.

Lastly, at the close of the year, Charlotte, N.C., confirmed its competitive position for businesses and workers looking to relocate and thrive by comfortably outpacing other top metros in terms of office-using employment growth. In addition to the relatively low cost of living, the business-friendly environment boasts one of the lowest corporate tax rates in the nation, which the local administration plans to eliminate entirely by 2030. In September, Charlotte recorded an office employment growth of 3.3%, which placed the Queen City well ahead of all other top metros last year.

Methodology

This report covers office buildings that are 25,000 square feet or larger. Listing rate and occupancy information was based on Yardi Research data.

Listing rates are full-service rates or “full-service equivalent” for spaces that were available as of the report period.

Vacancy refers to 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. For reporting purposes, A and A+/trophy buildings were combined.

Stages 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 were estimated using sales comps based on sales that were similar in terms of the market and submarket; use type; location and asset ratings; sale date; and property size.

Market boundaries in the CommercialCafe office report coincide with markets defined in the CommercialCafe Markets Map and may differ from regional boundaries defined by other sources.

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