Slower construction and rising conversions reshaped risks in the nation’s bruised office market
The US office sector, long a flashpoint for lenders and investors, showed early signs of stabilizing as new construction slowed, decommissioning accelerated and adaptive‑reuse projects took more obsolete space out of circulation.
Nationally, the office vacancy rate stood at 17.6% in February, about 200 basis points lower than a year earlier, while average asking rents slipped to $32.79 per square foot, nearly 2% below year‑earlier levels.
Manhattan led the country with almost $1.6 billion in year‑to‑date sales, followed by the Bay Area at $680 million and Miami at $666 million, even as only about 28 million square feet of space was under construction nationwide.
“Life sciences development overextended a bit coming out of Covid,” Peter Kolaczynski, director at Yardi Research, said.
“Currently, we see investment interest stabilizing even as there is a still a glut of freshly delivered space available. Expectation is for the industry to grow into the space over the rest of the decade, albeit with fewer deliveries adding new space.”
That pullback has been most visible in the life sciences hubs of San Francisco, Boston and San Diego, where new starts fell from 15.4 million square feet in 2022 to just 2.4 million in 2025.
The slowdown created room for oversupply to be absorbed, even as sales volumes in the niche remained subdued and 2025 pricing reportedly fell nearly 24% year‑over‑year, a figure that has not been independently verified.
Structural change in office demand
Leasing trends still reflected the deeper shift toward hybrid work. The long‑anticipated wave of distress in the US office market begun to surface in 2025, with larger urban assets facing mounting vacancies and refinancing strain, particularly in Chicago and coastal gateways, Kolaczynski said in an earlier report.
Regionally, conditions diverged. Western hubs such as San Francisco and Seattle continued to post vacancies well above 20%, even as San Francisco achieved top‑tier asking rents near $63 per square foot.
Miami and Manhattan ranked among the tightest major markets, with Miami’s sales momentum building on several years of capital inflows and strong pricing.
Conversions and thin pipelines support values
In markets like Denver, shrinking construction pipelines and a rise in office‑to‑residential conversions, including high‑profile assets such as the 13‑story Denver Tech Center, helped push vacancy below 20%.
Midwestern metros generally remained among the most affordable, with Detroit and the Twin Cities posting sub‑$30 asking rents and more modest new supply.
In the South, Miami, Austin and Washington, D.C., led regional rent tables, with Miami asking roughly $55 per square foot and topping the South for both leasing rates and sales.
Texas markets carried more than half of the Southern construction pipeline, with Dallas, Houston and Austin together accounting for nearly 16% of the national pipeline.
In the Northeast, Boston and Manhattan alone represented about 23% of US office development, while Manhattan’s sales volume outpaced every other market.
Labor market data added another layer of nuance. Office‑using employment fell 0.5% year‑over‑year nationwide in February, even as Nashville and several other metros recorded positive gains following sharp declines earlier in the cycle.
For lenders and brokers, the takeaway is less that the office repricing cycle ended, and more that a slower supply engine and active conversion wave are beginning to put a floor under fundamentals.
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