The Q1 2025 U.S. office market reports pointed to ongoing weak absorption; in other words, a repeat from previous quarters. There were, however, some bright spots involved. Cushman & Wakefield’s MarketBeat explained that while quarterly net absorption was negative, “the four-quarter rolling absorption total was at its strongest in over two years.”

More Absorption News—Or Lack Thereof?

Two of the reports—Colliers’ U.S. Office Market Statistics and Lee & Associates’ North America Office Reports—reported positive net absorption. In fact, Lee & Associates analysts explained that the “positive, albeit weak tenant growth” ended up being a “dramatic turnaround” versus the net absorption losses from Q1 2024.

The JLL Office Market Dynamics Report was a little less optimistic, noting that occupancy losses returned, due in part to federal lease terminations, federal contractor lease additions, and buildings removed for conversions. However, “this still reflects a 60% improvement from Q4 2024,” the JLL analysts pointed out.

Another piece of good news is that sublease space is decreasing. “The amount of vacancy coming from occupiers in putting space on the sublease market has declined for four straight quarters,” according to Cushman & Wakefield’s analysts.

Meanwhile, in the Construction Arena . . .

Also decreasing? The pipeline. All reports noted fewer starts and deliveries nationwide.

“Despite tenant preferences for top-tier new space, construction starts were limited,” observed Colliers’ analysts. “The high cost of materials, labor and financing requires significant pre-leasing to kick off a new project.”

JLL analysts also indicated that construction had declined by 78% since 2019, and that “72% of the space under construction is preleased.”

What’s to Come

The Cushman & Wakefield outlook suggested that economic uncertainty and its impact on commercial real estate shouldn’t be ignored. However, there are some reasons for cautious optimism. “After struggling early in the pandemic, gateway markets are growing their populations again,” the Cushman & Wakefield analysts said.

JLL analysts were also somewhat optimistic, explaining that “net absorption is expected to stabilize and vacancy rates are expected to plateau and eventually decline.” More expansionary leases in the coming year could mean that absorption and vacancies should improve.

However, Lee & Associates’ analysts forecast an increase in vacancies through 2026, while rent growth “should continue to decelerate, prior to settling in a period of paltry growth.” Colliers analysts agreed, indicating that rent growth “is expected to stall in most markets, especially with limited completions of new trophy projects.”

On the other hand, “one of the most promising signs in Q1 was a meaningful improvement in capital markets liquidity for the office sector and tentative improvements in distress levels,” JLL analysts said. Reset basis and more capital flows should mean “more investment from landlords into concessions and upgrades for Class A buildings with limited transactability in the current environment,” the analysts added.