Office Market Shrinks in 2025: Conversions and Demolitions Outpace New Construction

Office Market Inflection Point

• 💡 The office market is reaching an inflection point, with new data suggesting a potential positive outlook for investors.
• 🏗️ For the first time in at least 25 years, office conversions and demolitions are expected to exceed new construction by the end of 2025.

Shrinking Office Footprint

• 📉 By the end of 2025, approximately 23 million square feet of office space in the largest 58 US markets is slated for demolition or conversion.
• 🏢 In contrast, developers are projected to complete only 12.7 million square feet of new construction in the same markets.

Market Recovery and Leasing Activity

• 📈 Office vacancies remain high at 19%, but the market is showing signs of recovery.
• 📊 Net absorption has been positive for the last four quarters, reversing a previous six-quarter negative trend.
• 🚀 Office leasing activity saw an 18% increase in Q1 year-over-year.

Conversion Potential and Challenges

• 🔑 Developers have an additional 85 million square feet of office space identified for conversion in the coming years.
• ⚠️ A note of caution exists regarding the shrinking supply of suitable office spaces for conversion due to high and increasing conversion costs.