For the first time in at least 25 years, the U.S. office market is experiencing a net reduction in space, as demolitions and conversions are set to exceed new construction in 2025. According to CBRE Group data, 23.3 million square feet of office space is slated for removal or conversion by year-end across 58 major U.S. markets, while only 12.7 million square feet of new space is projected for completion.
This net reduction in office supply is expected to contribute to lowering vacancy rates in the coming quarters, which directly benefits building owners. The market is showing signs of recovery, with office-leasing activity increasing by 18% in the first quarter of 2025 compared to the same period last year, driven by a shift back to in-person work.
Prime office locations and new, Class A spaces have seen a recovery in rents, positioning major office REITs like Alexandria Real Estate Equities as beneficiaries. ARE's focus on high-quality, specialized life science properties in innovation clusters aligns with the flight to quality trend, as obsolete space is removed from the market in favor of higher-value uses.
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