As tight supply constraints converge with an accelerating tenant migration toward premium properties, prime office rents surged across global markets in the third quarter of 2025, with asking rents climbing year-over-year in 42 of 74 tracked international markets as of Q2 2025 and maintaining robust upward momentum through Q3.
The rent escalation concentrated primarily in core financial capitals and dynamic secondary hubs, reflecting persistent demand for top-tier spaces amid reduced new supply and increased competition for A-grade assets.
New office supply in 2025 plummeted to 17 million square feet, falling dramatically below the 10-year average of 44 million square feet and magnifying pipeline tightness across major metropolitan areas. This supply shortage enabled owners of prime offices to gain stronger negotiating leverage, supporting continued upward rent pressure while widening the premium between high-quality and commodity office properties.
Overall U.S. office vacancy reached a record 19.6% in Q1 2025, yet vacancy remained substantially lower for high-quality Class A properties, with prime office vacancy forecast to approach or dip below pre-pandemic norms of approximately 8.2% in top urban districts by 2027.
The persistent flight to quality phenomenon drove tenant behavior throughout the quarter, as mid-sized and expanding firms prioritized buildings with top amenities and desirable locations.
Class A space experienced consistent absorption from tenants relocating from lower-grade properties, while Class B and C vacancies remained elevated above 20% in some markets due to this quality shift.
Large company downsizing focused mainly on older, less efficient buildings, whereas small business expansions targeted premium, flexible offices that offered adaptable, high-quality environments. Additionally, the rise of flexible workspaces reflected changing tenant preferences, with these adaptable spaces accounting for 65% of new leases globally as companies sought more agile office solutions.
Leasing activity strengthened considerably, with U.S. leasing volume projected to rise 5% in 2025, driven by a robust pipeline of active tenants and growing small-business requirements. Smaller tenants dominated more than half of the leasing volume, focusing predominantly on spaces between 10,000-20,000 sq. ft. as they sought right-sized premium accommodations.
Over one-third of corporate occupiers planned to increase their office portfolio size in 2025-2026, signaling strengthening demand for well-located assets. Tenants entering new agreements must ensure tenancy agreements clearly outline rent escalation clauses and maintenance responsibilities to avoid future disputes in the competitive market.
Markets including Austin, Nashville, and Miami demonstrated outsized leasing momentum, supported by new prime deliveries and economic growth, while office absorption turned positive in key cities like New York, reflecting gradual demand recovery despite lingering elevated vacancy rates.
