The U.S. office market posted its fourth consecutive quarterly decline in vacancy rates, signaling strong recovery momentum.
Vacancy fell to 23.2 percent in the second quarter, dropping 15 basis points from the prior quarter, according to Avison Young’s quarterly office market report. Available space shrank by 10.2 million square feet.
The vacancy rate sits 80 basis points lower than a year ago but remains 270 basis points above Q2 2021 levels.
Sales activity also rebounded as transaction volume climbed 69 percent over the last four quarters, hitting $40.8 billion. Premium and Class A buildings represented more than 71 percent of total deals.
Major markets, including Manhattan, Miami, Los Angeles, Chicago, Houston and Dallas, posted substantial increases in trading volume.
Tenant demand stayed below pre-pandemic benchmarks, though there was growing strength in select markets. Leasing volume totaled 138 million square feet during the first six months of the year, falling 16.2 percent short of pre-Covid averages and 13.9 percent below the same period in 2024.
San Francisco, however, recorded a 61 percent annual increase in leasing while Manhattan gained 17.2 percent.
Quality buildings continued to attract tenants as trophy properties nearly doubled their portion of deals during the first half. Lower-tier Class B and C assets lost market share across most major metro areas.
Workplace occupancy reached 60.4 percent of May 2019 levels by this past May. Government and engineering sectors posted the strongest returns at 68.6 percent and 66.9 percent, respectively. Technology and consulting firms lagged at roughly 50 percent their pre-pandemic levels.
New space requirements for tenants contracted 15 percent from 2019 to 2025, driven by smaller lease commitments. Renewal deals, however, expanded 16.2 percent over the same timeframe, though large renewal transactions declined sharply this year.
Development remained constrained by market uncertainty and elevated construction costs, limiting supply of high-quality space and supporting demand for existing premium assets.
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