An upswing in rents midyear suggests the fundamentals of the office sector are improving in gateway markets in the U.S. -- though not all these markets or segments are benefiting equally.
CompStak’s Gateway Office Starting Rent Index achieved a new high in 2Q 2025 after a sharp dip following its previous peak in Q3 2022. The improvement signaled that rents may be stabilizing and fundamentals improving-- hinting at renewed tenant demand and confidence in gateway locations, identified as New York City, Dallas-Fort Worth, Phoenix, Philadelphia, Boston, San Francisco Bay Area, Los Angeles, Chicago, Washington, DC and Atlanta.
“More than half of gateway midmarkets show rent growth potential – 54.8% of markets had property market rent estimates above in-place rents,” the report noted, citing Boston, Dallas-Fort Worth and Chicago as leaders.
It found evidence of trends that favor the office market. This includes a 0.4% increase in the number of job openings, even though employment has been flat. New supply is expected to be limited due to the rising producer price index, which is raising costs and work-from-home days have stabilized at a lower level. Class A lease expirations are expected to peak from 2026 to 2029, developments that could increase demand in other segments.
CompStak finds that much of the improvement in leasing is being driven by traditional economic sectors – financial, insurance, real estate and legal (FIRE). Increased demand from the digital sectors – technology, advertising, media and information – has also played a role.
However, “government/nonprofit leasing plunged following federal footprint reduction,” CompStak stated.
Even though the rent index has risen overall, it has not been consistent, either among different office classes or on a regional basis. New York and Dallas-Fort Worth showed the greatest overall recoveries; in these metros, rents in both Class A and Class B/C buildings improved.
In most markets, however, the results were mixed. Boston’s Class A buildings performed well, while Class B's and C's remained in decline. The opposite was true in Philadelphia, which saw a strong recovery in Class B/C while Class A rents remained in decline.
Other regions are beginning to show improvement in one segment, but not in all. In the San Francisco Bay Area, Class A showed moderate recovery while Class B/C were stabilizing but lagging. In Washington, D.C., Class A was stabilizing but lagging, while Class B/C was still in decline, with the trend the opposite in Chicago. Atlanta was the only gateway market to be identified as still in decline for all three office property types.
Overall average effective rents for Prime Class A space rose in 2Q 2025, after flattening for the previous three quarters, spurred by several deals at over $200 per square foot. In the same period, Class B+ rents did the best among non-Prime assets, while other Class B assets also posted gains, which could be “an early but cautious sign that recovery, once concentrated in top-tier assets, is beginning to extend more broadly across the market," according to CompStak.
Still, landlords continue to offer incentives varying by the asset class. Many tenants enjoyed free rent for an average of 7.8% of the lease term in gateway markets in 2Q 2025, a cyclical high. While rent shares of Class A properties stabilized year-over-year, free rent rates expanded significantly for Class B+ (+430 bps) and other Class B properties (110 bps) – a sign of landlords’ intensified efforts to attract tenants.
Free rent ratios remained unchanged in Class A but surged in Class B. Other offerings -- including work value incentives to cover the cost of renovations and other allowances -- “plateaued at elevated levels in Prime Class A and climbed elsewhere," CompStak noted. Plus, the report noted that surging construction costs and new tariffs have led to a rise in office values.
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