2025 Mid-Year Office Market Report: Part Two

SKIP AHEAD TO

• The Gateway Office Starting Rent Index Regained Ground in First Half of 2025, Reversing Two-Year Decline to Reach New High
• Gateway Office Markets Show Divergent Recovery Patterns Between Class A and Class B/C Space Through Q2 2025
• More than Half of Gateway Midmarkets Indicate Rent Growth Potential, While San Francisco, Brooklyn, and Washington, D.C. Trail
• Class A Lease Expirations Set to Dominate Through 2030, With 2026 Marking the Peak
• 2025 Office Leasing Dominated by Traditional Sectors as Public Sector Retreated
• 2025 Office Leasing Dominated by Traditional Sectors as Public Sector Retreated

The office sector is showing signs of stabilization, but the recovery looks very different depending on market, asset class, and tenant type.

Check out our new Mid-Year Office Market Report, powered by CompStak data through Q2 2025. We’re highlighting critical shifts across 11 gateway markets including Boston, New York, San Francisco, Dallas–Fort Worth, and Washington, D.C.

Click here to download the full report here.

The Gateway Office Starting Rent Index Regained Ground in First Half of 2025, Reversing Two-Year Decline to Reach New High

The Gateway Office Starting Rent Index is on the upswing again in 2025, reaching a new high in the second quarter after rising 4.7% from the most recent low in Q1 2024. This follows a 3.3% decline from the previous peak in Q3 2022, reflecting a period of market softening. The recent rebound signals a stabilization in rents and suggests some improvement in fundamentals across core office markets. While growth remains measured, the upward trend points to renewed tenant demand and increasing confidence in gateway locations.

Gateway Office Markets Show Divergent Recovery Patterns Between Class A and Class B/C Space Through Q2 2025

Market by market, CompStak analyzed effective rents to measure recovery levels across both Class A and Class B/C building classes. Using a combination of effective rent recovery since 2019 and year-over-year change (Q2 2024 vs. Q2 2025), CompStak identified several key trends:

• New York City and Dallas–Fort Worth lead the nation, with both Class A and Class B/C space showing strong recovery, earning them the only two “Recovery” overall statuses in the ranking.

• Mixed performance is common across most markets. For example, Boston’s Class A space is in strong recovery, but its Class B/C market remains in decline. Conversely, the PA/DE/South NJ region shows strong recovery in Class B/C, while Class A is still in decline.

• Some markets are split by class strength. Phoenix, for example, is “stabilizing but lagging” in Class A, yet showing strong recovery in Class B/C. The San Francisco Bay Area is moderately recovering in Class A but still lagging in B/C.

• Notably, the number of markets showing some form of recovery is the same for both Class A and Class B/C space, underscoring that the strength of recovery is not concentrated in one building type.

• Three Class A markets that are not in recovery (Phoenix, Washington D.C., and SF Bay Area) still show slight gains compared to 2019 levels, but each registered recent year-over-year declines, signaling renewed weakness.

• Lagging markets are driven by across-the-board weakness. Chicago, Washington D.C., and Atlanta all remain in decline or lagging in both Class A and B/C.

• Through Q2 2025, while New York City and Dallas–Fort Worth stand out as broad-based recovery leaders, most gateway markets remain split—with one property class showing improvement while the other continues to lag.

More than Half of Gateway Midmarkets Indicate Rent Growth Potential, While San Francisco, Brooklyn, and Washington, D.C. Trail

Of the gateway markets broken out by midmarket and building class into 73 geographies in this report, 54.8% have property market rent estimates above their current in-place office rents, suggesting potential room for rent growth from today’s levels. The average spread in markets where estimates exceeded current rents was 19.3%, while the average in markets where estimates fell below current rents was 9.0%. The largest positive spreads were found across all building classes in Boston’s Cambridge, multiple markets and building classes in Dallas–Fort Worth, and Class A space in Chicago.

At the other end of the spectrum, where current in-place rents outpace CompStak’s property market rent estimates, the lagging markets include all building classes across San Francisco submarkets, Class B and C space in Brooklyn, and Class B and C space in Washington, D.C.
Finally, several markets stood out for having in-place rents closely aligned with CompStak’s current rent estimates. These included Class A space in Atlanta’s CBD, Class B and C space in Midtown Manhattan, and Class A space in Downtown Manhattan.

Class A Lease Expirations Set to Dominate Through 2030, With 2026 Marking the Peak

More than 57% of all leases in place today are scheduled to expire between Q3 2025 and year-end 2030, with 2026 marking the peak year for square footage coming due. While the majority of expirations are in Class A space, their share rises steadily from 2027 through 2029 as Class B expirations trend downward following the 2025–2026 period. With new office supply still constrained, these upcoming Class A lease rollovers could generate demand spillover into other building classes as quality space availability continues to diminish in select markets.

2025 Office Leasing Dominated by Traditional Sectors as Public Sector Retreated

In 2025, the finance, insurance, and real estate (FIRE) sector took a commanding lead in new office leasing, accounting for 31.5% of all activity across gateway markets in the highest share in 2025 to date and a jump from 22.7% in 2024. Legal services also remained a key sector of demand at 13.5%, maintaining a significant share in recent years. The technology, advertising and media, and information (TAMI) sector showed signs of recovery, rising to 19.9% in 2025 after several years of below pandemic level averages. In contrast, the government and nonprofit sectors experienced a steep drop, falling to 2.2% from 7.1% the year before, likely reflecting the fallout from DOGE-recommended lease cancellations and a reduction in the federal workforce. Coworking, meanwhile, remained at historical lows. These shifts suggest market demand is becoming more concentrated around traditional office-using industries while government and nonprofit sectors pull back. 

Renewal Lease Term Length Climbs Above 2019 Levels for Four Straight Quarters, Led by Legal Services

Lease term lengths for new deals have moved closer to 4Q 2019 levels for three consecutive quarters, while renewals have outpaced 2019 levels for four straight quarters—signaling stronger confidence in long-term commitments especially among in-place tenants. Renewal and overall terms were lifted by legal services tenants, whose average lease length has exceeded 2019 levels for three years in a row and is up 6.1% in 2025. By contrast, TAMI tenants continue to lag behind that benchmark.