Proprietary data from JLL shows the United States’ office real estate market is recovering. That’s a remarkable resurgence and represents a new chapter in changing market realities. In H1 2025, the total industry transaction volume jumped to $25.9 billion. This big number represents a remarkable 42% increase from last year. Perhaps the most remarkable aspect of this continuing rise is the seismic change in investor sentiment powering this amazing comeback. The market has gone from “office curious” to “office serious,” highlighting a climate of reengagement with office space investments.
As Mike McDonald, senior managing director at JLL, explained, the market dynamics shifted significantly. He saw enormous demand for much bigger transactions, $100 million and up. Not surprisingly, these transactions have increased by roughly 130% from the same time in 2024. This change is significant in highlighting a larger trend in improving investor confidence, as investors look to identify value and make strategic moves in the reopening market.
The reality of office space availability is that the landscape is changing drastically. McDonald underscored the danger of this “dark matter.” He pointed to as an example underutilized properties, such as a 1-million-square-foot tower in downtown Detroit, Pittsburgh, Cleveland or Dallas that runs at 40% occupancy. He stated,
“We call them dark matter, and they do matter. It’s that 1-million-square-foot tower in downtown Detroit or Pittsburgh or Cleveland or Dallas that is 40% occupied.” – Mike McDonald.
Such is the paradoxical state of today’s office market. Institutional investors are seeking out these so-called ‘distressed assets’ with the most potential for heightened returns. As JLL’s recently released 3rd quarter Capital Markets report indicates, investors are seeking opportunistic returns at prices that are remarkably low. Buildings that five years ago would have commanded upwards of $300 per square foot are now trading below or around $50 per square foot.
The office market is in a robust recovery mode, having emerged from a bottoming-out period after the early pandemic years. This economic slump led to a drastic drop in new even planning and construction of new buildings. Next year, that drops to just 6 million square feet of new office space delivered. That’s an incredible 90% drop compared to the four-year annual average after the financial crisis.
REIT (Real Estate Investment Trust) acquisitions have been surprisingly robust this year. Projected lower interest rates over the next several quarters will certainly make the cost of capital less burdensome for deal-making. This new change will go a long way to supercharging investor activity.
In the second quarter of 2025, competitive bidding experienced an unprecedented jump. This brought office bid volume to a staggering $16 billion, the highest quarterly total since Q2 2022. The average number of bids on individual transactions rose by 50% over this period, a sign that investor confidence is returning.
Even more notably, firms are reorienting their corporate real estate portfolios. In 2022, companies on average cut close to one-fifth of their office footprint when moving. That number has changed tremendously, plummeting to a mere 3%. Or, as in many cases today, because businesses are being increasingly shrewd and strategic with their space requirements. Instead of vacating space, many are doubling down on their footprint.
In five years’ time, second-tier buildings will probably receive increased demand and even outperform trophy buildings in rental rates and absorption. McDonald hasn’t downplayed the importance of this trend, saying,
“What typically happens is, after a downturn, the high-net-worth private capital comes back in because of opportunistic returns, and they start buying. The REITs follow, and then the institutional capital flows, like pension funds, separate accounts, offshore capital, follow the REITs. That’s exactly what’s playing out right now.” – Mike McDonald.
The recovery in the U.S. office market has gained momentum this year. Increasingly, more investors are getting back in the game with increased vigor, which can create even further acceleration. JLL’s insights show there’s a deeper truth. These changes are not only coming to a stop but rather marking the end of an era of favorable market conditions.
“Some people may refer to it as slowing down; it’s really hitting a brick wall.” – Mike McDonald.