Lee & Associates - SoundSage

For the first time in years, the office market has headline numbers that genuinely look better. The U.S. posted a modest annual net absorption gain in 2025, the first since 2019. Leasing picked up. Activity in top-tier buildings improved in several major markets.

But the rebound is narrower than it looks. The better question is not whether office is “back” or still “broken,” but where it is actually healing, why there, and why so much of the market is not participating. The answer lies in four forces: a widening split between high-quality and lower-quality buildings, uneven office-using employment growth, differences in workplace strategy, and a supply environment far more constrained than in past cycles.

REBOUND IS SHOWING UP, BUT ONLY IN CERTAIN MARKETSManhattan is the clearest example of a defensible rebound. Leasing reached nearly 42 million square feet in 2025, including 10 million square feet in the fourth quarter alone. Availability fell to 13.9%, its lowest level in five years, with major firms including Bloomberg, Moody’s, Millennium Management, and Ropes & Gray either renewing or expanding. In a market with deep finance-sector demand, rising attendance, and a limited pool of best-in-class space, office demand has reasserted itself in a meaningful way.

Houston also looks materially better than a year ago. The market posted 2.44 million square feet of 12-month net absorption, reversing 2024 losses, while vacancy eased from its recent peak. Phoenix logged more than 816,000 square feet of annual absorption, with both vacancy and sublease space moving down. Nashville turned positive again as office-using employment improved, making it one of only a handful of major metros with year-over-year growth in office-heavy jobs. Dallas–Fort Worth combines stronger utilization with one of the better effective-rent recovery stories among major office markets.

These are markets where tenant demand, building quality, local economic mix, and supply discipline are lining up in ways that create visible traction rather than interchangeable success stories or a broad sector rebound.

QUALITY IS DOING MOST OF THE WORKThe current rebound is quality-led, first and foremost.

Nationally, Class A space absorbed a net 17.74 million square feet in the second half of 2025, while Class B finished the year 10.6 million square feet in the red. Many occupiers are no longer looking for more office; they are looking for better office. After years of hybrid experimentation, footprint reduction, and capital restraint, tenants still seeking physical space are making sharper decisions about what that space needs to do—better locations, stronger amenities, more efficient layouts, upgraded systems, and a more credible in-office experience.

Markets with elevated vacancy can still show real strength at the top end. Austin is one of the clearest examples: overall vacancy remains around 25%, yet Class A captured 78% of leasing activity in the fourth quarter. Similar patterns show up in Atlanta, the Twin Cities, Cleveland, and Omaha. Lease-structure data points the same way: weaker buildings are not just leasing less well; tenants are also less willing to commit to them for long periods.

In many markets, demand is being reallocated within the office universe rather than broadening across it. Top-tier assets are seeing tighter conditions and more credible leasing momentum. Commodity Class B and especially Class C buildings are fighting for relevance, not just occupancy. READ MORE>

LEE LENS: WHAT THIS MEANS FOR THE NEXT PHASE OF OFFICEOffice is beginning to heal, but only under specific conditions: where tenants still want physical space, where that demand is concentrating in higher-quality buildings, where local employment and industry mix support office use, and where supply is no longer working against landlords the way it did in prior cycles. The winners are increasingly identifiable—buildings with the right quality, in markets with the right employment base, serving tenants whose workplace strategies still require physical space. The rest of the market is still searching for relevance, recapitalization, or a new use. That is a narrower story than the headline suggests, but a more useful one for owners, occupiers, and investors trying to understand where the next phase of office actually takes shape.

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