In a notable shift for the U.S. office market, 2025 will mark the first time in at least 25 years that more office space is being removed than added. This trend, highlighted by data from CBRE, signals a fundamental change in the commercial real estate landscape. Across 58 major U.S. markets, 23.3 million square feet of office space is set for demolition or conversion, while only 12.7 million square feet of new office space is projected to be completed by the end of the year.
The driving force behind this change is the ongoing impact of remote work, which has led to a substantial increase in office vacancies, currently hovering at a record high of 19%. As businesses continue to embrace hybrid and flexible work models, the demand for traditional office spaces remains subdued. In response, many office buildings are being repurposed, with developers converting surplus space into residential units, contributing to the growing trend of office-to-residential conversions.
Despite the challenges, the market is showing signs of recovery. Leasing activity has seen an 18% increase in the first quarter of 2025, compared to the same period the previous year. With fewer office spaces available, demand for prime locations and Class A office space is stabilising, and rents in these areas are beginning to recover. Additionally, the ongoing trend of office conversions is helping to revitalise urban areas by providing much-needed housing in city centres.
Looking ahead, developers are poised to convert an estimated 85 million square feet of office space over the next few years, further reshaping the urban landscape. While the process faces challenges, such as rising construction costs and the limited availability of suitable buildings for conversion, the shift presents a significant opportunity for innovation in both commercial real estate and urban development. As the market continues to adjust, stakeholders are finding new ways to adapt to the evolving demands of businesses and residents alike.
