The office market is no longer searching for a bottom. According to JLL's latest Office Chronicle report, the sector is stabilizing on several fronts at once, from rising investment and lending activity to a steep decline in new supply. Those forces are helping propel a recovery that is gaining traction unevenly, with top-tier assets pulling decisively ahead.
Investment sales volume climbed 41% year over year to $62.7 billion in 2025, a sharp rebound from the $39 billion recorded in 2023. Lending activity is also returning. Office originations surged 84% year over year, driven largely by SASB and CMBS markets, while debt funds and life companies expanded their presence. At the same time, institutional investors are re-engaging, particularly in gateway markets. San Francisco's investment volume jumped 140% year over year, while New York City rose 40%.
That momentum is unfolding alongside a historic slowdown in development.
Bruce Miller, Senior Managing Director and co-leader of JLL's National Office Group, tells GlobeSt.com the office sector has effectively split into two distinct markets, with the gap between them continuing to widen.
At the top end, newer, high-quality buildings are benefiting from a sustained "flight to quality" that began during the pandemic. Lower-tier assets, by contrast, continue to lose tenants and face declining occupancy and lease terms.
Miller notes that despite years of negative headlines, top-tier performance has been remarkably resilient.
"This performance is occurring on the cusp of an unprecedented slowdown in office deliveries," he said.
In the pre-pandemic cycle, more than 40 million square feet of office space was delivered annually. By 2027, that figure is expected to fall below 5 million square feet. Since 2022, the sector has seen a net loss of 84.3 million square feet, as demolitions and conversions have outpaced new construction.
That supply contraction is reinforcing strength at the top of the market.
"This performance at the top is not only sustainable, but will continue to accelerate for Tier 1 and then Tier 2 product, as the Tier 1 market tightens even further," Miller said. "It will come in the form of strong positive net absorption with the resulting decline in vacancy and spikes in rental rates."
He says that trend is already visible in several U.S. submarkets and is expected to intensify through 2026 and 2027. Meanwhile, lower-tier buildings will continue to struggle unless they sit in prime micro-locations such as Midtown Manhattan or San Francisco's Financial District.
The capital markets backdrop has also shifted dramatically.
Following the interest rate spike in 2022, office debt largely disappeared through 2023 and early 2024, limiting liquidity and forcing sellers to offer financing to complete deals. That lack of credit weighed heavily on transaction volume.
By 2025, however, lenders had returned in force.
Miller says SASB and CMBS markets reactivated alongside debt funds, insurance companies, and select banks, pushing originations up 86% year over year. More available and competitively priced debt—particularly for high-quality assets—has helped revive larger transactions, especially those exceeding $100 million.
"It also provides more flexibility for investors who want to extend their hold window with bridge and/or shorter-term 3- to 5-year financing," he said.
Demand for financing continues to build. March 2026 marked the third-highest month for new loan applications on JLL's platform since 2023, even amid geopolitical tensions and a modest rise in the 10-year Treasury yield.
At the same time, equity investors are beginning to reassess the sector.
"We have seen a material increase in the number of bidders per deal, and the return of institutional investors that are looking at the office sector as an opportunity to generate excellent risk-adjusted returns relative to other commercial property sectors," Miller said.
That renewed interest is especially evident in New York City and San Francisco, though each market is recovering for different reasons.
New York has emerged as a leader in the recovery, with leasing activity reaching 36.4 million square feet in 2025—its first time exceeding the 2010–2019 average.
"Companies across the tenant universe are bringing their talent back into the office three to five days per week, and the city is embracing office conversions, with over 30 million square feet of office slated to be converted to residential units," Miller said.
He adds that the city continues to attract top-tier talent across industries ranging from AI startups to major financial firms.
San Francisco, meanwhile, is rebounding after being hit early and hard by remote work trends.
"Fast forward to today, most of the largest tech firms have implemented substantially stricter return-to-office policies based on tangible evidence that in-office work boosts productivity," Miller said.
The city is also benefiting from its central role in the AI boom, with more than 300 leases totaling over 5 million square feet signed by AI-related tenants in the past three years. While some areas remain challenged, submarkets such as the South Financial District and Mission Bay are seeing renewed demand, supported in part by policy and regulatory changes.
Beyond the major gateways, Miller points to several under-the-radar markets gaining momentum. Charlotte's South End has posted some of the strongest leasing and rent growth in the country over the past year, while parts of Northern Virginia and Orange County are benefiting from defense-related demand. Chicago's Fulton Market is also outperforming despite broader challenges in the city.
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