I work late in London’s financial district, office buildings and office buildings.
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The recovery in the US office market is on the rise this year and is expected to accelerate. Vacancy rates and the amount of employees returning to the office focus on measuring demand, while the new look to the office interest from the capital market points to even stronger recovery than previously thought.
JLL, a global commercial real estate and investment management company, has provided Real Estate Play with exclusive access to limited distribution client reports. Office trading momentum was significantly strengthened in the first half of this year, with the total industry total increasing 42% year-on-year to $25.9 billion.
With JLL’s office sales transactions alone, the volume increased by 110% from the first half of 2024 to the first half of 2025.
The report notes that as they progress through the third quarter, JLL is actively looking at a move from “Office Curious” to “Office Serious” to be seen actively across the industry. Low interest rates drive much of that.
Additionally, bids for certain transactions increased 50% over the same period, resulting in $16 billion in office bids in the second quarter alone. Bid volume can measure sector growth and health from a capital market perspective.
“What typically happens is that after a recession, high-net private capital comes back for opportunistic returns and they start buying. That continues, and then facility capital is chasing REITs, including pension funds, separate accounts, offshore capital.
This is an increase of about 130% in the first half of this year compared to the same period in 2024, and an increase of about 130% in the first half of this year, compared to the same period in 2024, and an increase of about 130% in the first half of this year.
Of course, there are flights to quality, and top-class office buildings see the majority of demand. According to McDonald’s, when these buildings fill up, two-tiered buildings will begin to see an increase in demand, which could actually outperform the top-tiered buildings as they will be linked to rental fees and absorption over the next five years.
There is currently little new office space under construction as the large office recession in the first few years of the pandemic pulled out plans for new buildings. The market will see 6 million square feet of office space being delivered next year. This is 90% below the four-year average following the big money crisis.
“Some people might call it slower. It really hits a brick wall,” McDonald said. “There will be a shortage of new delivery over the next three years, as evidenced at 6 million square feet next year. This is anemia based on a 30-year historic average.”
He also pointed to an overall cut in office inventory as old office buildings are demolished or reimagined as homes, hospitality, self-storage, or anything other than offices.
The segment suffering at the lowest quality is still watching bargain hunters, so there is a bartel effect.
“We call them dark matter. They’re important. It’s a million-square-foot tower in downtown Detroit, or Cleveland or Dallas, where 40% is occupied,” McDonald said. “We are looking for a very difficult and very opportunistic return that could potentially be traded at $300 per foot five years ago and that would be available for $50 per $50.
The firm’s downsizing rates continue to attract demand across the office. Additionally, businesses don’t throw away much space when they move. In 2022, on average, businesses removed almost 20% of their space when they moved. According to clear signs of stabilization, it is currently down to 3%.
This year, REIT acquisitions were strong. Office REITs such as BXP, Vornado and SL Green have been in high over the past six months, but the largest Alexandria real estate stocks are still struggling.
The decline in interest rates in the next few quarters certainly helps the cost of debt for transactions, but the reason for this is due to economic weakness. It puts new pressure on the office market regarding demand from employers.
“We have what it has in mind, what it will have on real tenants and the companies that actually occupy these buildings,” McDonald said. “We have to think about macroeconomics, geopolitical risks, everything that is done to set the entire environment of our entire capital market, and the price of our liabilities, which are just one of its components.”
McDonald said there may be more to the facility’s capital lead next year. These so-called green shoots in the office market could drive high on both lease metrics and valuations over the next few years.
