2025 Mid-Year Office Market Report: Part Three

SKIP AHEAD TO

• $200+ PSF Trophy Leases Fuel Prime Class A Growth as Class B Recovery Broadens
• Class A Still Leads, but Class B Captures Growing Share of $100+ PSF Leases
• Gateway Markets See Free Rent Periods Stabilize in Class A While Climbing Sharply in Class B
• Prime Class A Work Values Plateau at Elevated Levels While Other Building Classes See Gains
• Gateway Medical Office Starting Rents Reach Eight-Year High Following Surge in 2025, But Lag Other Office Segments

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.

$200+ PSF Trophy Leases Fuel Prime Class A Growth as Class B Recovery Broadens

Compared to 4Q 2019, average effective rents for Prime Class A space, including trophy, newly constructed, and recently renovated properties, rose again in Q2 2025 after plateauing for the previous three quarters. Growth was fueled by several substantial deals surpassing $200 per square foot, including Mubadala Investment Company’s lease at 375 Park Avenue in New York City and Patient Square Capital’s lease on Sand Hill Road in the Bay Area. Class B properties also showed continued progress: Class B+ rents have been the strongest sector for growth among non-Prime assets for three consecutive quarters, second only to Prime Class A. Notably, the remainder of the Class B segment posted a rent level above 4Q 2019 level for the first time in this period, an early but cautious sign that recovery, once concentrated in top-tier assets, is beginning to extend more broadly across the market.

Class A Still Leads, but Class B Captures Growing Share of $100+ PSF Leases

In New York City, Class A properties continued to account for the largest share of triple-digit effective rent leases, though their dominance slipped slightly compared to prior years (2019 onward), with non-plus Class B capturing a greater share. Notably, the share of such deals going to Prime Class A fell to its lowest level in the dataset, likely reflecting a reduced supply of new construction and trophy assets. Across the other gateway markets, the trend was similar: Class A still held the majority share of triple-digit leases (73.8%), but non-plus Class B reached a new high, accounting for 26.2% of deals at this rent level.

Gateway Markets See Free Rent Periods Stabilize in Class A While Climbing Sharply in Class B

Broadly, free rent periods averaged 7.8% of the lease term across gateway markets in Q2 2025, holding at a cyclical high and more than 260 basis points above late-2019 levels. While Prime Class A and the broader Class A market saw free rent shares stabilize year over year, free rent ratios expanded sharply for Class B+ (+430 bps) and other Class B properties (+110 bps), signaling that landlords in this segment are relying more heavily on incentives to attract tenants.

Prime Class A Work Values Plateau at Elevated Levels While Other Building Classes See Gains

Since early 2023, the average work value relative to total deal value (total rent paid over the lease term less free rent) has remained within a narrow 70-basis-point band, ending Q2 2025 at 13.6%—stable quarter over quarter. This suggests that while work values have continued to rise for non-Prime Class A and B/C transactions, rent levels have increased in tandem, keeping ratios steady. Prime Class A work values remain well above those of other building classes, though the gap is narrowing: the rest of Class A is now just 14.3% below the Prime Class A average. This shift likely reflects the waning availability of top-tier product and tenant leverage pushing higher work values in non-Prime Class A space. Since 2020, construction costs have surged, and with new tariffs in 2025, additional upward pressure on work values is possible depending on tenant demand and landlord capacity.

Subtype Spotlight – Medical Office Space:
Gateway Medical Office Starting Rents Reach Eight-Year High Following Surge in 2025, But Lag Other Office Segments

Gateway market medical office space starting rents hovered in a narrow range of $37.52–$48.61 per square foot from 2017 to 2025, showing no clear long-term trend in CompStak’s data. In contrast, other office types rose, with the more significant jumps in the past two years, from $45.42 to $66.41 per square foot over the same period—a 46% gain. This divergence widened the rent gap, with non-medical office space priced 21% higher than medical office rents in 2017 and 37% higher by 2025.
Medical office rents also displayed greater volatility, alternating between gains and declines through 2024. A sharp 26% increase in 2025 pushed the average to $48.61 per square foot, driving total growth of 30% since 2017. Even with this surge, the sector’s uneven performance contrasts with the consistent upward trajectory of other office segments.