US office leasing bounces back to start 2025

By Phil Mobley CoStar Analytics

Growing economic uncertainty was not enough to stem the tide of tenants’ appetite for U.S. office space in the first quarter of the year.

Office-seeking companies leased an estimated 115 million square feet in the first three months of 2025, according to preliminary CoStar data. This was a 13% increase from the prior quarter and the most since the middle of 2019, offering the strongest evidence to date that a sector-wide recovery is underway as companies set their expectations for office attendance and space utilization.

The amount of square footage leased represents almost 1.4% of the country's office inventory. That is a shade below the average quarterly amount observed between 2015 and 2019. However, it matches the figure from the opening quarter of 2022 as easily the most since the beginning of the decade.

The surge in overall volume occurred despite a continuation of a trend of smaller transaction sizes. The trailing four-quarter average lease size of about 3,500 square feet is about 15% below its five-year, pre-pandemic norm. This was more than offset, though, by an estimated 33,000 transactions, a number that, when finalized, may ultimately be the highest on record.

The leasing recovery has some geographic breadth, with eight of the top 12 markets — including much-beleaguered San Francisco — showing first-quarter volume within 5% of the pre-2020 average.

Boston, which had suffered from the evaporation of demand from biotech lab occupiers, saw a tremendous swing in the first quarter, led by Biogen’s commitment to 580,000 square feet at the future 75 Broadway in Cambridge’s Kendall Square outside Boston.

Other major markets have shown improved leasing activity in recent quarters even if it remains depressed by historical standards. Washington, D.C., for example, saw a slight quarter-over-quarter decline in volume, likely related to reductions in the federal workforce and announced plans by the government to consolidate its real estate footprint. Even so, the general trend has been positive over the past year.

Leasing trends will be worth watching closely in the coming months. The rapid drawdown of the office supply pipeline means that tenants have fewer options for first-generation space. Most markets, of course, still have plenty of vacated space available for backfilling — but will tenants settle for space that may not tick every box on their wish lists? The answer will determine which landlords win the biggest in the new cycle.

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Philadelphia pulls ahead of nation’s office recovery in 2025

By Brenda Nguyen CoStar Analytics

Philadelphia emerged as the most stable office market among the 15 largest U.S. office markets heading into the spring season. Following a year of occupancy gains, the Philadelphia region now boasts the lowest office availability rate at 14.1%, slightly ahead of Minneapolis at 14.2%.

In a notable departure from national trends, Philadelphia is one of only three major U.S. office markets experiencing positive absorption—the measure of space occupied versus vacated—over the trailing 12 months, joining Dallas-Fort Worth and New York in registering occupancy gains, while the remaining top U.S. office markets continued to see occupancy losses.

The Philadelphia regional office market recorded 1.2 million square feet of net absorption during this period, representing a 0.4% increase relative to its inventory. Recent performance places the market ahead of the national recovery trajectory at a time when office downsizing remains prevalent across the country.

For context, the majority of the top 15 U.S. office markets experienced occupancy losses of between 1 and 3 million square feet. Philadelphia's performance stands in stark contrast to such markets as Boston which suffered negative absorption rates of -1.6%, and San Francisco, with -1.4%.

Several factors contribute to the relative stability of Philadelphia's office market. The region benefits from a diverse economic base anchored by education, healthcare, and government sectors—industries that have proven more resilient in the post-pandemic environment and less prone to remote work than the technology sector that dominates markets such as San Francisco.

Additionally, Philadelphia had significantly less speculative office development during the 2010s. This limited pipeline of new supply has buffered the local market from the oversupply issues affecting similar metropolitan areas such as Boston.

Despite these encouraging trends, challenges remain. Philadelphia still has 11.3 million square feet more available office space than in early 2020, and uncertainty persists about whether recent positive momentum will continue through 2025 amid national recession concerns.

Nevertheless, as other major markets continue to struggle with rising levels of office availability, Philadelphia's recent positive absorption represents an encouraging sign for the region's office.

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Developers pump brakes on new Philadelphia-area industrial buildings

 By Brenda Nguyen CoStar Analytics

Philadelphia's record-setting industrial development boom is winding down after an unprecedented five-year stretch that saw 55 million square feet of industrial space added to the region's inventory. As of March, 12.4 million square feet remain under construction across the Philadelphia region, a 52% decline from the early 2023 peak.

The development slowdown, which mirrors the national trend, primarily stems from the growing backlog of vacant newly delivered buildings. Approximately half of the 32 million square feet of industrial space completed in the Philadelphia region over the past two years remains unleased. Compounding this issue, 80% of the current 12.4 million square foot development pipeline is characterized as speculative, with no secured tenants.

The growing inventory of vacant newly built facilities has increased Philadelphia's industrial availability rate by 420 basis points since mid-2022. The market now faces a double-digit availability rate of 10.4%, which exceeds the national average by 80 basis points.

Several Philadelphia industrial brokers have indicated that their landlord clients had sat on their vacant properties for longer than anticipated when many projects broke ground in 2022 and 2023, a period of robust demand.

However, as unanticipated carrying costs pressure landlords, they have become more open to subdividing their warehouses to cater to a wider range of tenants.

CoStar data for Philadelphia's industrial market shows that the median time it takes to secure a tenant has inched upward from 4.7 months to 7.3 months during this two-year period.

In response to these market conditions, the number of industrial construction projects has plummeted. Only 1.7 million square feet of new industrial space broke ground in the second half of 2024, the lowest two-quarter level since 2018.

The ongoing development pipeline of 12.4 million square feet represents a 1.9% increase in existing inventory—still outpacing the national rate of 1.5%. However, the current downward construction trajectory suggests less supply will enter the Philadelphia market starting in 2026. The pullback should provide time for demand to absorb the 30 million square feet of additional available space added since mid-2022.

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