Large-scale office transactions are sending a powerful signal that the U.S. office market is in the midst of a meaningful recovery. In the first four months of 2025, single-asset office sales over $100 million have generated nearly 50% more volume than the same period last year, with at least 20 such properties trading hands compared to just 11 in early 2024, according to JLL. This surge is more than a statistical blip—it’s a sign of renewed depth, breadth, and confidence in a sector that has spent years recalibrating after the pandemic.
Mike McDonald, senior managing director at JLL and a veteran of nearly 32 years in institutional capital markets, is closely following this transformation. “We’re seeing more capital seeking high-quality office buildings than there are buildings available,” McDonald tells GlobeSt, describing a market dynamic that is rapidly shifting in favor of sellers of top-tier assets.
He credits this shift to a combination of investor education, a recalibration of values, and a yield environment that now offers compelling risk-adjusted returns. Cap rates for high-quality office buildings are significantly higher than they were in the pre-COVID era, creating what McDonald calls a “moment in time” for investors to capture arbitrage opportunities before the market fully normalizes.
Recommended For You
The roots of this resurgence date back to the early 2020s, when the office sector experienced a dramatic pullback as employers and employees alike grappled with the future of work. Uncertainty over remote and hybrid work, coupled with rising interest rates, led to a freeze in large transactions.
Recognizing the need for a new approach, JLL moved away from the traditional “Class A, B, C” labels, adopting a tiered system that more accurately reflects the widening gap between high- and low-quality properties. “Office tends to get painted with a big brush,” McDonald says, “but there’s a widening chasm between the ‘haves’ and ‘have-nots’ in the sector. Good buildings are getting better at a faster rate, and bad buildings are getting worse just as quickly.”
This bifurcation is now driving the behavior of both tenants and investors. Leasing activity and rent growth are robust in the upper tiers, while lower-quality buildings—what McDonald refers to as “zombie buildings”—are increasingly left behind. He estimates that as much as 35% of the office market consists of non-competitive properties destined for conversion, demolition, or other forms of removal from inventory, a process that will further tighten supply and support pricing for the best assets.
Liquidity is not just improving on the transaction side. Office delinquency rates have begun to decline for the first time since distress started mounting in 2022, falling from 11% in December to 9.8% at the end of April. While only about 12% of office assets have traded at reset values since 2023, the pace is picking up, and each new deal helps clarify pricing and restore confidence. McDonald views this as a crucial step in alleviating financial pressures on landlords and encouraging additional capital deployment for improvements and new development.
Investor sentiment is evolving quickly. McDonald describes a dramatic shift in mood among institutional investors, particularly in New York, where pessimism gave way to optimism almost overnight following positive economic news. “Office-curious folks are turning into office-serious,” he notes, and the numbers back him up: bidding pools for large office assets have increased 65% year-over-year, and the volume of $100 million-plus deals has nearly doubled. This momentum is being fueled by a flood of capital from both domestic and international sources, including Middle Eastern and Asian investors, as well as high-net-worth families and private funds. McDonald points out that there is $375 billion in “dry powder” from closed-end funds alone, and the total pool of private capital seeking U.S. real estate is at record levels.
A critical factor underpinning this optimism is the looming shortage of new office supply. The U.S. is on track to deliver just six million square feet of new office space in 2026, a staggering 90% below the post-financial crisis annual average. At the same time, the removal of obsolete buildings is shrinking the overall inventory. “In 2030, we’re not going to have enough of the right office buildings in the country,” McDonald predicts, suggesting that a new development cycle will be needed to meet demand for high-quality, modern space.
McDonald is also quick to address the narrative around remote work. He believes the rebalancing between home and office is largely complete, with most companies now operating at three to four days in the office—close to pre-pandemic norms. “I’m done talking about work from home,” he says. “It’s in the office now. The rebalancing is done.”
This stability in office usage, he argues, means that fears of a permanent demand reduction are overblown, especially for premium assets.
The transformation of the office sector has not been easy, and McDonald’s own journey reflects the industry’s turbulence. After a yearlong non-compete hiatus following his move to JLL, he spent months meeting with over 200 investors worldwide to make the case for U.S. office assets. His efforts, combined with JLL’s push to reframe the sector, have helped bring new energy and capital back to the market. “I personally believe that more money will be made in the office sector in the next five years than any other sector,” McDonald says, contrasting the asset class' current “priced to correction” status with the “priced to perfection” conditions in logistics and multifamily real estate.
For McDonald, the resurgence of large-scale office deals is not just a market phenomenon—it’s a validation of his thesis that the sector is poised for outsized wealth creation. “The water is warm—jump in and enjoy,” he urges, expressing optimism about the future. As more capital is deployed and more assets trade at reset values, McDonald expects the office market’s recovery to accelerate, setting the stage for a new era of opportunity for investors willing to seize the moment
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more inforrmation visit Asset & Logo Licensing.
Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
