T
he U.S. office market is gaining momentum this year, and the latest data suggests the rebound could be stronger than previously believed. A JLL client‑only report released to Property Play shows that overall office transaction volume rose 42 % year‑over‑year to $25.9 billion in the first half of 2025. Office sales alone jumped 110 % from the same period in 2024, outpacing every other major property type, including data centers.
JLL notes a shift from “office curious” to “office serious” across the industry, driven largely by falling interest rates. Bid activity has surged 50 % over the same timeframe, with Q2 alone generating $16 billion in office bid volume—the highest quarterly total since mid‑2022 when the 10‑year Treasury yield dipped below 3 %. Mike McDonald, JLL’s senior managing director for office, explains that after a downturn, high‑net‑worth private capital returns first, followed by REITs and then institutional investors such as pension funds and offshore capital. This sequence is currently unfolding.
Large‑deal demand (transactions over $100 million) has increased by roughly 130 % in the first half of 2025 compared with the same period in 2024, reflecting institutional appetite for high‑quality office and improved debt availability. Demand is concentrated in top‑tier buildings, but as those fill, second‑tier properties are expected to see stronger absorption and potentially higher rental rates over the next five years.
The pandemic‑era slump halted new office construction, leaving only about 6 million square feet of new space slated for delivery next year—90 % below the four‑year average post‑Great Recession. McDonald describes this as a “brick wall” of new supply, with a continued decline in inventory as older buildings are demolished or repurposed for residential, hospitality, self‑storage, or other uses. The distressed segment remains active; opportunistic investors target low‑basis assets—such as a 1‑million‑square‑foot tower in a mid‑size city—where purchase prices can be as low as $50 per square foot, enabling lower rents and faster turnover.
Company downsizing rates have stabilized. In 2022, firms shed nearly 20 % of their space when relocating, but that figure has dropped to 3 % this year, indicating a more measured approach to space reduction. Office REITs have seen robust acquisitions; stocks of BXP, Vornado, and SL Green have risen over the past six months, although Alexandria Real Estate Equities remains under pressure.
While lower borrowing costs will ease deal financing, the underlying economic weakness that prompted rate cuts could dampen employer demand. McDonald cautions that macro‑economic and geopolitical risks, along with debt pricing, all influence the capital‑market environment and tenant decisions. He predicts that next year will see institutional capital taking the lead, with these “green shoots” likely boosting leasing metrics and valuations in the coming years.
