For years, the U.S. office market has been waiting for a sign that the worst was over. It might have one in the latest research from Newmark.
The national office market posted another quarter of positive demand in the second quarter, vacancy continued to fall and new construction remained near historic lows. At the same time, tenants are signing leases, especially in the best buildings, according to Newmark’s second-quarter U.S. Office Market Conditions & Trends report.
But not everything in the report was positive. The big challenge for this sector? The office recovery is becoming increasingly divided between the properties tenants want and the ones they don’t.
That is the big takeaway from Newmark’s recently released trends report. The national U.S. office market recorded nearly 8.8 million square feet of net absorption during the second quarter, marking the fourth consecutive quarter of positive demand.
The vacancy numbers are encouraging, too. Newmark reported that the national office vacancy fell to 19.9% in the second quarter, down 60 basis points from a year earlier and below the 20.5% peak reached in the second quarter of 2025.
But don’t mistake that improvement for a return to the old office market. The big difference? Today’s tenants are choosier.
Class-A buildings continue to dominate the leasing conversation. Four- and five-star properties accounted for 49% of all new leasing activity during the quarter even though they represent just 34% of total office inventory. Newmark says Class-A leasing as a percentage of inventory continues to rise.
That flight to quality is one of the defining stories of the current office market. Companies that are bringing employees back to the office want to give them a reason to be there. That makes newer, better-located and amenity-rich buildings considerably easier to lease than older commodity space.
The numbers bear that out. Newmark estimates that just over 53 million square feet of office space was newly leased in the second quarter. That’s up 9.1% from the same period a year earlier, but still about 30% below the 2018-2019 average.
The bottom line? The U.S. office market is getting healthier. It just isn’t healthy enough yet.
In its report, Newmark estimated that about 42% of pre-pandemic office leases have not yet expired. That represents 869 million square feet of space scheduled for renewal before the end of 2027. Average lease sizes have already declined 13.4% from pre-pandemic levels.
Still, there is reason for landlords to feel better about those upcoming expirations. Newmark’s tenants-in-the-market data shows that 78% of companies plan to maintain or expand their footprints when their leases expire.
And the recovery isn’t confined to the biggest gateway markets. Secondary and tertiary markets accounted for nearly 80% of second-quarter absorption. Philadelphia led the nation with 1.3 million square feet of absorption, while Nashville posted about 1 million square feet. Technology-heavy and Sun Belt markets including San Francisco, Austin and Dallas also recorded meaningful gains.
Chicago remains a more difficult story. The market posted 522,407 square feet of positive absorption in the second quarter, but overall vacancy remained elevated at 26.7%. Average asking rent stood at $35.57 a square foot.
One factor could help Chicago and other challenged markets over time: Developers aren’t adding much new competition. Only 16.3 million square feet of office space was under construction nationally at the end of the second quarter, according to Newmark. That’s a dramatically smaller pipeline than the market saw before the pandemic.
Rents are another mixed bag. Asking rents rose 2.1% year-over-year nationally. But landlords are still offering hefty concessions to win tenants, with average tenant-improvement allowances 73.1% above pre-pandemic levels. Real rents remain roughly 9% to 11% below 2021 levels.
So, yes, the office market is recovering. But it’s also a market in which quality matters more than ever, tenants have more leverage and older buildings face a tougher road ahead.
For office owners, that’s the new reality: The market may finally be moving forward. The question is which buildings will be moving with it.
