The U.S. commercial real estate market is entering a phase of stabilization in mid‑2025, with renewed leasing momentum especially evident in suburban office districts and secondary markets.
According to a July 28 Homefront report by TopListings.com, tenant demand is growing in suburban office hubs where vacancy rates had previously surged during the post‑pandemic period. Landlords are responding by offering flexible lease terms and enhanced amenities such as hybrid‑ready workspace layouts and upgraded health features. These changes are attracting small and mid‑sized firms looking for cost-effective alternatives to high-cost urban cores, helping to rebalance market demand and support a cautiously optimistic outlook for the rest of the year.
Industry professionals nationwide have reported increased leasing tours, higher deal activity, and greater investor interest, particularly in industrial, multifamily, and data center sectors. The economic environment remains somewhat uncertain, but several real estate segments are outperforming. Multifamily continues to show strength, retail is proving resilient, and the industrial sector appears to be normalizing. Office leasing opportunities are emerging selectively, driven by asset quality and affordability.
Industrial deal volume remained steady at $22.9 billion in the second quarter of 2025, while warehouse vacancy rates rose to around 7.1 percent, marking the highest level since 2014. Class A office spaces continue to attract interest, benefiting from the digital economy and AI-driven property strategies.
Suburban areas are seeing a surge in investor attention due to their relatively higher yields and more stable demand. In the multifamily segment, vacancy rates remain low and rents continue to rise modestly, reflecting underlying economic strength in those regions.
On the office front, vacancy rates nationally remain elevated. In June, the average office vacancy rate stood at 19.4 percent, up 1.3 percentage points year-over-year. Asking rents rose by about 3.8 percent. Some Western cities continue to experience high vacancies, with San Francisco reporting a 27.7 percent vacancy rate and San Diego reaching nearly 23 percent.
Not all markets are following this trend. In Minneapolis, office space absorption turned positive for the first time in years. However, with more than 20 million square feet of vacant office space, experts estimate it could take decades to return to pre-pandemic occupancy levels at the current pace of leasing.
In contrast, Northwest Arkansas has become a standout example of recovery. Office vacancy rates there dropped to a 15-year low of 4 percent, and average lease rates remain well below national averages, encouraging continued growth.
As demand shifts, many cities are adjusting their commercial footprints. By the end of 2025, over 23 million square feet of office space in major U.S. markets will have been removed via conversion or demolition, far outpacing the roughly 13 million square feet of new office construction. Much of this space is being repurposed into residential units, particularly in cities like New York where housing shortages persist.
Despite growing interest in office-to-residential conversions, not all buildings are suitable. Financial and regulatory barriers mean only a limited portion of vacant office stock can realistically be transformed into housing in the near term, according to analysts.
Commercial real estate recovery in 2025 is being shaped by multiple intersecting forces: tenant migration to more affordable suburban and secondary hubs, the continued strength of industrial and multifamily sectors, a bifurcation in the office market between high-performing and lagging geographies, and supply-side adjustments that are slowly recalibrating market fundamentals.
Looking ahead to the second half of 2025, commercial real estate is expected to see continued improvements in capitalization rates and liquidity, particularly in the industrial and office sectors. Investors are focusing more on individual asset quality and location than broad market trends, favoring active portfolio management as a means of navigating the evolving landscape.
While challenges such as inflation, labor shortages, and global trade uncertainty persist, the broader picture is one of moderated vacancy, improved pricing power, and a gradually recovering commercial property sector.
