Signs of Life: U.S. Office Market Shows Promising Recovery in Q1 2025

After several challenging years, the U.S. office market is beginning to show real signs of recovery. According to preliminary data from CoStar, office leasing activity in Q1 2025 reached its highest level since mid-2019. This may be a turning point for a sector that has been struggling since the onset of the COVID-19 pandemic.

Q1 leasing activity reaches 115 million square feet

Office users leased an estimated 115 million square feet in the first three months of 2025, which is a 13% increase from the prior quarter. This figure not only marks the highest leasing activity in nearly six years but also equals the volume recorded in Q1 2022, which had previously been the strongest quarter of the decade.

This leasing total represents roughly 1.4% of the national office inventory, just shy of the quarterly average from 2015 to 2019. Despite ongoing economic uncertainty, it’s clear that companies are taking action and making decisions about how they will use office space in the post-pandemic era.

Smaller footprints, but more deals

While total square footage is up, the average lease size continues to decrease. Over the past four quarters, the average deal size has hovered around 3,500 square feet, which is about 15% below pre-pandemic norms. However, this has been more than offset by a dramatic increase in deal volume. With an estimated 33,000 individual lease transactions, Q1 2025 may become the most active quarter on record in terms of the number of deals.

Geographic breadth in the recovery

One of the most encouraging signs of recovery is the wide geographic participation. Of the top 12 U.S. office markets, eight posted leasing activity within 5% of their pre-2020 averages. This includes San Francisco, which had been among the hardest hit since 2020.

Notably, Boston experienced a major resurgence, boosted by Biogen’s 580,000-square-foot lease at the future 75 Broadway in Kendall Square. This signals that even markets affected by sector-specific slowdowns, such as life sciences, are finding renewed momentum.

Return-to-office (RTO) initiatives gaining traction

Behind much of this leasing momentum are the increasingly structured return-to-office mandates being implemented by large employers. Companies such as Amazon, JPMorgan Chase, AT&T, and Goldman Sachs are now requiring employees to return to the office three to five days a week.

Amazon, for instance, delayed parts of its RTO plan in 2024 due to insufficient office space, which is an ironic twist that has since driven its increased demand for large, centralized office locations. These mandates have reignited leasing in many urban cores and suburban office markets alike, signaling that the remote-work pendulum may be swinging back toward more in-person collaboration.

The road ahead: less new construction, focus on quality space

Although leasing activity is up, new office construction is tapering off, meaning tenants will face fewer options for first-generation space. This trend may drive more companies toward Class A buildings that meet modern expectations for amenities, sustainability, and design, while older and outdated properties may continue to face challenges.

For landlords and investors, this trend underscores the importance of investing in quality to capture demand from companies that are being more selective about their office footprint.

Conclusion: Is the worst behind us?

While challenges remain, including a significant amount of underutilized Class B and C office space, the Q1 2025 leasing surge provides real optimism that the U.S. office market may be turning a corner. If return-to-office mandates continue to gain traction and the economy holds steady, we could see a continued recovery in demand and valuations through the remainder of the year.

At Site Selection Group, we are closely tracking office market trends and helping companies navigate this evolving environment. From headquarters relocations to shared service centers, making the right office site selection decision today requires strategic insight, data analytics, and a clear understanding of the shifting landscape.