The U.S. office market is still struggling to find its footing, but there are at least a few signs that conditions might not be getting worse.
That’s one of the key takeaways from a new report released by CommercialCafe, which shows that while vacancy rates remain elevated across the country, they have begun to inch down on a year-over-year basis.
According to the report, the national office vacancy rate stood at 17.6% in February. That figure is still high by historical standards, a reminder that many companies continue to rethink how much space they need in a post-pandemic world. But it also represents an improvement: Vacancy has dropped by 200 basis points compared to the same month a year earlier.
Rents, though, are moving in the opposite direction. The average national listing rate hit $32.79 a square foot in February, down nearly 2% from a year ago. That dip reflects the continued pressure landlords face as they compete for a smaller pool of tenants. In many markets, building owners are offering concessions or trimming asking rents to fill empty space.
New construction isn’t adding much additional pressure. The office pipeline remains modest, with just over 28 million square feet under construction nationwide. That limited supply could help prevent vacancy rates from rising significantly in the near term, especially if leasing activity continues to stabilize.
Office investment activity is still concentrated in a handful of major markets. Manhattan led the country in office sales volume so far this year, with nearly $1.6 billion in deals closed. The San Francisco Bay Area followed with $680 million in transactions, while Miami recorded $666 million.
Interestingly, both Manhattan and Miami also posted some of the lowest vacancy rates among the nation’s top office markets in February, a sign that demand remains stronger in select, high-profile locations.
Geography continues to play a significant role in pricing, too. Office markets in the West and Northeast generally command higher-than-average rents, while those in the Midwest and South remain more affordable. That dynamic could make central U.S. markets increasingly attractive to cost-conscious tenants, even as companies continue to evaluate their long-term office strategies.
Construction activity is also unevenly distributed. Boston; Manhattan; Dallas; and Los Angeles were the only major markets with more than 2 million square feet of office space under construction in February. These cities also ranked among the most active development hubs, suggesting that developers are still willing to bet on long-term demand in key gateway and Sun Belt markets.
For now, though, the broader story remains one of a sector in transition. Vacancy is still high, rents are under pressure and many companies are still figuring out how office space fits into their future. But with vacancies slowly declining and new construction in check, the latest numbers suggest that the office market may finally be stabilizing, even if a full recovery is still a long way off.
