The Office Market Is Dividing, Not Disappearing
The office market still looks weak at first glance. Vacancy rates remain high, and many buildings continue to sit partially empty. That has shaped the headline view for months.
But the underlying shift is more precise than that. Demand has not vanished. It has narrowed. What used to be a broad market is now splitting into two very different outcomes, depending on the quality of the asset.
That split is becoming the defining feature of office real estate today.
Quality Is Now the Primary Driver of Demand
The biggest change is not how much space is needed, but which space is chosen. Tenants are still signing leases, but they are concentrating in newer buildings with better layouts, stronger amenities, and updated systems. These properties continue to attract occupancy even in a slower environment.
At the same time, older buildings without upgrades are losing relevance. They face longer vacancy periods, increased incentives, and lower effective rents. This is not a temporary imbalance. It reflects a lasting change in tenant preference.
The result is a widening performance gap between top-tier and lower-tier assets.
By the Numbers
U.S. office vacancy rates now sit above 18% nationally, with several major cities exceeding 20%. Within that number, Class A buildings continue to outperform. In many cases, their occupancy levels are 10 to 15 percentage points higher than older properties.
Leasing activity remains present, but it is concentrated. That concentration is more important than the total volume of space available.
Lease Structures Are Becoming Less Predictable
Tenant behavior is also changing in how space is contracted. Companies are committing to shorter lease terms and using less space per employee. Flexibility has become a priority.
This reduces income visibility for landlords. In the past, long-term leases created stable and predictable cash flow. Now, even well-positioned buildings must regularly compete to maintain occupancy. That shift changes how income streams are valued and how risk is assessed across portfolios.
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Right now, one specific company is sitting directly in the path of this $1.75 trillion tidal wave.
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When the IPO prospectus (the S-1) goes public in June, this “hidden” dependency will be hidden no longer.
Dylan Jovine has identified the exact trigger point that could reprice this stock overnight.
Pricing Is Still Adjusting to New Conditions
Transaction activity remains slow, largely because pricing expectations have not fully aligned. Some assets have already reset lower, reflecting weaker demand and higher risk. Others are still priced based on older assumptions.
This creates a gap between buyers and sellers. Owners with stable financing may choose to wait rather than accept lower valuations. Buyers, in contrast, are underwriting based on new leasing realities and higher capital costs.
Until those views converge, transaction volume is likely to remain limited.
The Market Is Moving Toward Repositioning
Not all office buildings will return to their previous use. Some assets may require significant upgrades to remain competitive. Others may be repositioned entirely, shifting into residential or mixed-use formats.
This process takes time and capital, but it is already underway in several markets. The key point is that recovery will not be uniform. Different assets will follow different paths based on their location, structure, and adaptability.
The Bottom Line
The office market is still functioning. But it is no longer broad or uniform.
Demand is concentrating in a smaller set of higher-quality buildings, while weaker assets are being repriced. The shift is not about whether offices remain relevant. It is about which buildings continue to work within the new structure.
