Leasing recovery progresses, but occupancy losses return
Insight
U.S. Office Market Dynamics, Q1 2025
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Leasing volume slowed moderately from post-pandemic highs in Q4, but reached 50.4 million s.f. in Q1 2025, growing more than 15% compared to Q1 2024.
Leasing volume over the past 12 months now reflects 89% of typical pre-pandemic activity.
Occupancy losses returned as net absorption fell to -8.1 million s.f. in Q1, driven in large part by federal lease terminations, contractor sublease additions and inventory removals.
Downsizing rates continue to stabilize, falling to just 6.6% over the past year.
Direct asking rents continue to be largely stable, growing by 0.14% QoQ as landlords continue to maintain or increase rents in most cases, and significant discounts have been rare.
Stabilizing concessions among renewal transactions are helping to drive up effective rental rates.
Conversion and redevelopment volume remains high at the outset of 2025, and completions fell to their lowest level in over a decade with only 3.5 million s.f. delivered.
Overall U.S. office inventory declined by more than 10 million s.f. and may fall by an additional 40 million s.f. by the end of the decade.