- The U.S. office market saw 800 KSF of net positive absorption in Q3, marking a significant turnaround from the 16.4 MSF of net losses in 3Q23.
- Office conversion projects are gaining momentum. 103 projects are set to be completed in 2025, the highest number since CBRE began tracking conversions.
- National office vacancy rates remain high at 17.6%, but regional disparities exist, with some markets below 5% and others nearing 30%.
Colliers’ Q3 report indicates a shift in office market fundamentals, driven by growing tenant demand and higher leasing volumes, as net absorption finally turns positive.
By The Numbers
As reported in Bisnow, asking rents rose modestly, up 0.9% YoY to $37.09 PSF. Sublease availability fell for the fifth consecutive quarter, reflecting a tighter supply of large office spaces entering the market.
While the national vacancy rate stands at 17.6%, regional differences remain. Markets like Savannah, and Santa Fe boast rates below 5%, while major cities like San Francisco, Chicago, and Houston report vacancies as high as 30%.
Converting The Masses
The CBRE report highlights an increasing trend toward office-to-other-use conversions, with 73 projects completed this year and 30 more set to finish by year’s end.
In Q3, 71 MSF of office space—representing 1.7% of the nation’s inventory—was undergoing or slated for conversion.
- Residential Conversions Dominate: Over 74% of projects nationwide involve converting offices into multifamily housing. However, San Francisco stands out, with none of its planned conversions targeting residential use.
- Alternative Uses: Nationally, 8% of conversions will become hotels, 6% life sciences spaces, and 4% industrial facilities.
CBRE predicts a sharp increase in conversions in 2025, with 185 projects planned or announced and another 94 already underway. Factors driving this trend include declining office valuations, increased developer interest, and city incentives for adaptive reuse.
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Case Studies
Developers in key markets are leveraging office-to-residential conversions as a strategy to revitalize underutilized buildings and address housing shortages.
- Philadelphia’s Three Parkway office tower was purchased for just 26% of its previous value, with plans to convert half of the space into 175 residential units.
- New York state has introduced tax incentives for office-to-residential conversions, with Manhattan identified as a prime candidate for such projects.
Why It Matters
The U.S. office market is showing its strongest signs of recovery since the pandemic. While leasing gains and modest rent growth signal improvement, adaptive reuse projects remain critical to addressing persistently high vacancies in struggling markets.
As office-to-residential conversions gain traction and city incentives align with developer needs, the transformation of obsolete office spaces could become a cornerstone of urban real estate strategy in the coming years.
