The national office space vacancy rate is still trending up, but it is beginning to slow, according to data from Cushman & Wakefield.
Office space absorption in the first quarter of 2025 fell by 10.5 million square feet, according to Cushman & Wakefield. However, the year-over-year rolling absorption total was the strongest in more than two years.
While the first quarter’s numbers were not ideal, they were much better than the first quarter of last year, which saw net absorption fall 25.7 million square feet. During the past four quarters, 34 of the 92 markets tracked by Cushman & Wakefield Research recorded positive net absorption.
In the first quarter of 2025, the strongest office space market in the country was San Jose, Calif., where positive absorption reached 1.8 million square feet. It was followed by Phoenix with a net absorption of 486,000 square feet; Midtown Manhattan (448,000); Baltimore (384,000); Kansas City, Kan. (366,000); and San Diego (332,000). Other areas showing positive absorption were located across the country, but the Sun Belt remained the strongest region.
Vacancy rates finished the first quarter up 25 basis points to 20.8%. The annual increase of 110 basis points was the lowest increase in more than two years. Overall vacancies remained flat or declined quarter over quarter in 30 U.S. markets, including Fairfield County, Conn.; Miami; Kansas City, Kan.; San Jose, Calif.; San Diego; Minneapolis-St. Paul, Minn.; Central New Jersey and Atlanta.
The subleasing of vacant space has also declined, falling each of the past four quarters. As of the beginning of the second quarter, there were 130 million square feet of available sublease space, down 9.5% from one year ago. The sublease market is considered a precursor to the general vacancy market. So, as subleasing declines, it is an indicator that vacancies may soon begin to decline.
Helping to firm up the vacancy side of the office equation is the fact that the office construction pipeline continues to contract. Cushman & Wakefield estimates that the current under-construction pipeline totals 26.2 million square feet, down by nearly half from one year ago and just one-fifth of the first-quarter pipeline in 2020, which was 136 million square feet.
New deliveries in the first quarter totaled 4.1 million square feet, the lowest quarterly total in 12 years. There are only 10 U.S. markets with construction pipelines at more than 1% of current inventory, and none of those markets exceed 2.6%. By comparison, a year ago, there were seven markets with construction pipelines exceeding 3% of the current inventory, and two of those markets were above 6.5%.
The authors of the quarterly report maintain that the uncertainty surrounding the policies of President Donald Trump are helping to slow the office sector’s recovery.
“Office has held up well so far, but the longer the policy uncertainty lasts, the more damaging it will likely be,” the report states. “We are already observing signs of weakness emerging in the economic data. Nominal retail sales have been weaker so far this year, which is perhaps an early indication that the consumer is starting to pull back. Jobless claims remain low but are drifting higher. Layoff announcements spiked in March. Business uncertainty is at (an) all-time high and CFO optimism is declining, all of which could lead to hesitations in long-term investments (including leases).”
