Why U.S. Office Space is Shrinking for the First Time in 25 Years

The U.S. office market is undergoing a structural reset. For decades, corporate America’s appetite for space steadily grew, with new developments routinely adding to the national office inventory. That changed dramatically with the onset of the COVID-19 pandemic. Hybrid and remote work models, cost containment strategies, and evolving tenant preferences have forced landlords and developers to reassess how much office space is truly needed and what kind.

Today, we are witnessing an inflection point. For the first time in 25 years, the total amount of office space in the U.S. is expected to decline. This reversal is not just statistical, it reflects a more profound transformation in how businesses operate, how employees engage with the workplace, and how cities adapt their built environment.

U.S. office market overview (2018–2025)

Total U.S. office inventory and net Absorption

• 2018–2020: Inventory grew each year, driven by new Class A development.
• 2021–2022: COVID-induced elevated vacancy (~13–14%), declining utilization, and slower absorption.
• 2023–2025: Office space inventory contracted for the first time in 25 years. Net removal of ~23M square feet expected by the end of 2025, while new deliveries are projected at ~12.7M square feet.

Office vacancy and utilization trends

• National office vacancy peaked near 19% in early 2025.
• Utilization rates were declining pre-2020 (~1.4% annual drop 2009–2019), then accelerated (~7.5% annual) post-pandemic.
• Sublet space remains elevated; in top markets like New York and San Francisco, sublet inventory makes up ~15–18% of total availability.

Class A vs. B/C inventory dynamics

• Class C stock—often older and structurally obsolete—is the main target for demolition or conversion.
• Class A assets remain more stable as demand consolidates toward high-quality, amenity-rich offices.
• Incentives, zoning easements, and conversion economics are driving repurposing of older Class B/C assets.

Conversion and demolition: Driving shrinkage

Developers are speedily repurposing or demolishing underused office assets:

• Office-to-residential conversions: ~23M square feet slated for conversion by 2025 (first half of the year already ~9M square feet removed).
• Demolition: Triggered by obsolescence and low valuations—removals in 2025 projected at ~23–23.3M square feet versus deliveries of just ~12.7M square feet.
• Policy catalysts: Tax abatements, zoning adjustments, and streamlined approvals are removing conversion bottlenecks.

What this means for stakeholders

Class A owners and investors

A thinning supply of Class B/C assets strengthens the positioning of high-quality offices. Vacancy in trophy properties is tightening, and prime landlords can implement higher rents.

Developers and municipalities

Conversion projects are becoming financially viable, unlocking housing supply and driving urban regeneration, especially in markets under housing pressure.

Tenants and brokers

While sublet increases and vacancy persist, tenants are “right sizing” footprints, leading to more efficient space usage (e.g., 20% collaborative area vs. 14% in 2021).

Market outlook

With construction slowed and supply contracting, gradual stabilization is underway. Still, national vacancy remains elevated, and long-term recovery remains tied to in-office trends and continued conversions.

Closing: Navigating complexity with clarity

As the office sector continues to evolve, corporate occupiers face a complex mix of challenges and opportunities. Rising vacancy in lower-tier buildings, more flexible lease structures, and increased availability of high-quality sublet space offer levers to optimize location strategies. Simultaneously, office-to-residential conversions and market contraction may reduce long-term options—especially in supply-constrained urban cores.

In this environment, strategic site selection and workplace planning are more important than ever. Site Selection Group is uniquely positioned to help tenants and corporate users capitalize on this changing landscape. Our exclusive focus on occupier representation ensures that your real estate decisions are aligned with your business objectives, whether you're rightsizing, relocating, or planning for growth.

Source: CoStar, CoreNet Global, and various press releases