Office Report: Construction Falls to Historic Lows, Pricing Reaches Bottom

Article originally posted on Commercial Property Executive on December 23, 2025

Office fundamentals remain challenged despite modest improvement in vacancy, according to the latest Yardi Matrix national office report.

Physical occupancy failed to increase, demand stayed weak, and employment across office-using sectors remained flat. Loan maturities are also adding pressure, with roughly half of outstanding office debt set to mature in the coming years, much of it originated before the Covid. Markets with favorable conversion potential stand to benefit, as distressed pricing makes redevelopment more feasible. At the same time, rising concerns over a potential recession have further constrained development activity, creating a tougher environment for new projects.

Coworking continued to strengthen its role within the office sector. Through November, operators added 22 million square feet nationwide, a 16 percent year-over-year increase. Flex space now represents 2.2 percent of total leasable office inventory, helping bridge the gap between fully remote and traditional office use. Remote work remains prevalent, with 42 percent of U.S. companies adopting the model, according to Flex Index—supporting ongoing flex office demand. As growth continues, operators face mounting pressure to scale efficiently and to stay competitive, particularly as 98.5 percent of providers operate fewer than 10 locations.

Market performance has begun to diverge, however, with a handful of metros emerging as relative bright spots. Manhattan stands out among them, where the vacancy rate trended lower over the year, while developers kept adding to the city’s supply pipeline.

The national office vacancy rate declined to 18.5 percent as of November—down 90 basis points year-over-year. Of the top 25 U.S. office markets, 16 recorded vacancy improvements during the first 11 months of the year. Even so, elevated vacancy levels persist across several metros. Austin office space continued to post the highest vacancy rate nationally at 26.8 percent, followed closely by Seattle at 26.6 percent. Miami recorded the lowest vacancy among major markets at 11.9 percent.

Twin Cities stood out for vacancy deterioration, reaching 17.8 percent after a 190-basis-point year-over-year increase. Ameriprise Financial’s exit from its 1 million-square-foot headquarters in downtown Minneapolis contributed to the rise. However, at the other end of the spectrum, Manhattan office space stood out, posting a 310-basis-point decline over the past year and reaching 13.4 percent in November—the second-lowest vacancy rate in the U.S.

As of November, the national average full-service equivalent asking rents stood at $32.77 per square foot—down four cents month-over-month and 0.2 percent year-over-year. Manhattan remained the priciest market at $68.36 per square foot, while Detroit recorded the lowest average at $21.59 per square foot.

Construction activity hits historic low

Office construction activity fell to a historic low in 2025, with just over 13 million square feet of new space starting through November—roughly in line with last year’s muted levels. Projects in planning and under construction stages now account for just 1.7 percent of national inventory, down from 3 percent a year ago.

As of November, the under-construction office pipeline totaled 32.2 million square feet, 0.5 percent of inventory and marking a 44 percent decline from the same period of 2024.

Boston continued to lead the nation in office development with 4.1 million square feet underway, equal to 1.6 percent of stock—less than half of its 2024 pipeline. A slowdown appears likely as demand for lab space cools, compounded by federal funding cuts to NIH research grants that could curb life science development. Manhattan followed with just under 3 million square feet under construction and stood out as one of only three major markets to expand its pipeline in 2025, posting a 10 percent year-over-year increase.

The national office investment activity reached $48.1 billion as of November. Manhattan led all markets with $7.3 billion in sales, followed by the Bay Area at $4.4 billion.

Office pricing showed its first sign of stabilization since 2022. As of November, the national average sale price rose to $190 per square foot—up 7.1 percent year-over-year but still 33 percent below the sector’s 2021 peak. Even with prices bottoming, discounted transactions remained widespread, accounting for 44.3 percent of office sales so far this year.

Pricing weakness remained pronounced across several markets, while the lowest drop was noted in Chicago, where office assets traded at an average of $64 per square foot—down 27.8 percent year-over-year and marking the fifth consecutive annual decline. A recent example includes AEW Capital Management’s acquisition of 525 W. Van Buren, which traded at a 7 percent discount, underscoring continued pricing pressure in the metro.