After a long stretch of uncertainty, the national office space market is showing signs of a comeback. According to the NAIOP, the first quarter of 2025 marked the fourth consecutive quarter of positive net absorption, totaling 5.6 million square feet. This turnaround comes as remote and hybrid work arrangements have stabilized, and more employers are calling their staff back to the office, gradually increasing office usage across the country.
Yet, the outlook does not come without shadows. Concerns over U.S. trade policy and the mounting federal debt are casting doubt on the pace of economic growth and raising the specter of a potential recession. In light of these risks, NAIOP projects net office space absorption for the remainder of 2025 to reach 24.98 million square feet, with an additional 15.1 million square feet anticipated for 2026—though this forecast assumes a 70% chance of a mild recession.
Looking back, the market absorbed 7.3 million square feet in the final quarter of 2024, while the nationwide vacancy rate held steady at 11.8%. However, the year as a whole ended with negative absorption of 14.4 million square feet, largely due to a sharp decline of 30 million square feet in the first quarter of 2024. Despite this, the recent string of positive quarters may signal, as NAIOP puts it, “the end of the post-pandemic doldrums in office demand.”
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Still, the recovery is modest compared to the past. The four-quarter rolling absorption average now stands at just 3.6 million square feet, a far cry from the 22.9 million square feet average seen annually between 2010 and 2019. NAIOP’s forecast suggests future absorption will peak at 11.2 million square feet over the next eight quarters. With employment growth expected to be much slower than in the previous decade, total employment from 2023 to 2033 is projected to rise by only 6.7 million jobs. That's about a third of the growth seen from 2009 to 2019, as the next 10 years will likely see net absorption remain below pre-pandemic levels. It’s worth noting that the previous period included the robust recovery from the Global Financial Crisis, which saw a dramatic rebound in jobs.
Structural downsizing is also expected to weigh on the market, likely keeping net absorption under pressure until long-term leases signed before March 2020 expire or are renewed.
Adding yet another layer of unpredictability is the volatile economic environment, shaped by shifting U.S. tariffs and retaliatory measures from trading partners. The recent doubling of steel and aluminum tariffs, from 25% to 50%, is just one example of the kind of policy shifts that are difficult to anticipate. While the Conference Board’s Leading Economic Index has declined, it has not yet reached a level that would signal a recession. Meanwhile, trailing indicators like employment and consumer spending continue to show growth. Inflation is on a downward trend, but it still hasn’t quite reached the Federal Reserve’s target and the possibility remains that higher tariffs could push inflation up, perhaps leading to the Fed raising interest rates. The yield on the 10-year Treasury Note hovers near 4.5%, which continues to put upward pressure on mortgage rates.
In this environment, the office space market’s recovery is real, but its long-term trajectory remains uncertain—caught between the push for a return to the office and the pull of broader economic forces.
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