Lessors of Nonresidential Buildings NAICS 531120

Dec 17, 2025 - Outlook for Office Demand Remains Cloudy

• The US office market’s recovery remains uneven amid high vacancy rates and declining property values in some markets, according to The Wall Street Journal. While districts like New York’s Park Avenue and San Francisco’s South of Market show signs of strength, most markets struggle with empty space due to structural shifts from remote and hybrid work. Companies are downsizing footprints, leaving landlords, lenders, and local governments under pressure as office-related tax collections fall. Some investors remain cautious, with office property sales far below pre-pandemic levels, though conversions to housing and limited new supply are tightening prime space in select areas. With AI-driven job cuts adding uncertainty, analysts warn the slump may not mirror past cycles, raising questions about the long-term viability of traditional office demand.
• Commercial real estate remains out of favor with investors, who have been burned by falling property values, even as the Federal Reserve has repeatedly cut rates, according to The Wall Street Journal. Institutional buyers, once the backbone of the market, have reduced their allocations as returns have lagged far behind those of equities, infrastructure, and commodities. US property values remain 17% lower than their 2022 peaks, with offices and apartments hit the hardest, according to Green Street. While opportunistic firms like RXR and Blackstone are acquiring discounted assets, many investors are hesitant to invest in refurbishments. Amid the demise of cheap debt and the assumption of rising property values, income generation from property is becoming increasingly important, shifting the focus to assets such as senior housing, retail, and high-quality offices. With construction costs up more than 40% since 2020, the limited new supply could drive rent growth.

• Retail landlords are entering 2026 with cautious optimism after a strong third quarter, reversing earlier declines tied to bankruptcies, tariffs, and weak sentiment, according to The Wall Street Journal. In Q3, retailers entered 5.5 million more square feet than they vacated, according to data firm CoStar. Discount chains such as Dollar General, Aldi, and 7-Eleven drove demand, while construction remained historically low, keeping the Q3 vacancy rate at 4.3%. Although closures from bankruptcies pushed store shutdowns up 11% in the first three quarters of 2025 compared to the same period in 2024, landlords are finding higher-paying tenants. Online sales growth and flat inflation-adjusted retail spending have slowed rent gains, but analysts say consumer resilience will remain if the labor market holds steady.
• Industrial real estate is showing signs of stabilization, with climbing demand and a shrinking supply pipeline helping to ease vacancy pressures, according to Supply Chain Dive. Colliers reports Q3 net absorption increased by 20 million square feet year over year and was the strongest since Q1 2023. Companies are increasingly comfortable making long-term decisions, despite tariff-related uncertainty, according to Prologis President Dan Letter. Ecommerce and supply chain investments are driving demand as firms aim to improve service while reducing costs. Letter noted that large, well-capitalized companies are leading the way, often followed by smaller businesses. Meanwhile, Colliers reports that industrial space under construction fell to 270 million square feet in Q3, the lowest since 2018. Despite this, markets like Dallas-Fort Worth and Houston are seeing construction growth amid consistent tenant demand.