2025 Biannual Office Market Report: Part Two

CompStak analyzed 11 major U.S. gateway office markets using lease-level data and the Columbia CompStak Rent Index. The latest data through Q4 2025 shows an office sector in the middle of a slow, uneven recovery, with sharp divergence across markets, asset classes, and tenant types. Check out the full insights in the 2025 Biannual Office Market Report.

Office REITs Post Negative Returns in 2026 YTD, While Data Centers Positive Amid AI Surge

According to Nareit, returns for data center REITs have consistently outperformed office REITs in recent years, reflecting strong demand for digital infrastructure. Data center REITs outperformed office REITS in eight of the nine years shown, including seven consecutive years from 2018 to 2024, reflecting sustained investor preference for digital infrastructure at the same time as the office sector has declined in favor post-COVID.

Office REITs have posted negative returns in several years, including declines of -18.4% in 2020, -37.6% in 2022, and -14.0% in 2025. Meanwhile, data center REITs have benefited from strong demand tied to cloud infrastructure and AI growth, posting positive returns of 21.0% in 2020, 30.1% in 2023, and 25.2% in 2024.

Higher Construction Costs and Flat Office Development Spending Are Constraining New Supply

As of December 2025, the Producer Price Index for net inputs to nonresidential construction was up 2.5% year over year. While this growth is far below the rapid escalation seen in 2021–2022, when the index surged 38.7% from January 2021 to June 2022, it still reflects persistent cost pressures for materials used in office construction and tenant improvements. During the same period, total private construction spending on office space grew by 3.3%, indicating a measured pace of investment. Limited new construction, combined with elevated costs, will likely continue to constrain supply and potentially support rents for high-quality, well-located office properties.

U.S. NPI Office Vacancy Near Peak as CBD Leads but Gap with Suburban Narrows

NCREIF’s U.S. office vacancy rate continued to rise through Q3 2025, peaking at 19.9%, before dropping to 19.7% in Q4. Central Business District vacancy remained the highest, reaching 21.1% before easing to 20.5%, while suburban vacancy climbed to 19.0%, narrowing the post-COVID gap between the two. Year-over-year trends vary by market: San Francisco vacancy continued to rise, though at a slower pace, increasing by 50 basis points in Q4 2025; New York City declined by 100 basis points to 16.6%, signaling stabilization; and Dallas–Fort Worth posted a larger 210 basis point decrease. Overall, vacancy remains elevated nationwide, with CBDs under the greatest pressure, but slowing year-over-year increases point to early signs of stabilization.

Office Sector’s Share of Total Market Value in NCREIF Property Index Continues Steady Decline

The office sector’s share of total market value in the NCREIF Property Index has declined for 22 consecutive quarters since Q3 2020, reaching a new low of 19.0%. The pace of decline has shown mixed signals: while it appeared to slow in early 2025, the office sector’s share fell 79 basis points quarter over quarter in Q3 2025, the sharpest drop since Q1 2024. In Q2 2020, when COVID-19 began, the office sector accounted for 38.0% of the index value, roughly double today’s share.

Columbia CompStak Rent Index (CCRI) Shows a Shallower Office Downturn but a More Muted and Recent Recovery Than Raw Data Indicated

In March 2026, Columbia, in partnership with CompStak, unveiled the CCRI, a quality-adjusted effective rent index covering the office, retail, and industrial sectors. On a national basis, the office index tells a different story than the raw data. The national office market experienced a shallower decline from pre-COVID levels, but its recovery has also been more muted and more recent than raw data would suggest. From Q4 2019 to the COVID trough, the CCRI fell 4.3%, while the raw data declined by nearly three times as much. However, the CCRI indicates that office rents only returned to pre-COVID levels within the last five quarters and, by year-end 2025, stood just 7.8% above that level.

Check out the full 2025 Biannual Office Market Report.