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Office Space Shrinks as Conversions Outpace Construction for the First Time in Decades
CBRE says 23 MSF of office space will be removed in 2025—nearly double what’s being built. A pivotal year for US office real estate.
Jordan B.
June 04, 2025
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Good morning. For the first time in at least 25 years, more US office space will be demolished or converted than built. A new CBRE report signals a fundamental shift in how cities and investors are rethinking aging office stock.
Today’s issue is sponsored by LendingOne—the nation’s fastest-growing build-to-rent (BTR) and SFR portfolio lender for institutional investors.
Market Snapshot
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Turning Point
Office Space Shrinks as Conversions Outpace Construction for the First Time in Decades
For the first time in decades, more US office space will be demolished than built in 2025, reshaping cities, reviving downtowns, and thinning out outdated stock.
The big shift: A new report from CBRE reveals a turning point in the US office market: 23.3 MSF of office space is set to be demolished or converted in 2025, compared to just 12.7 MSF of new office deliveries. With national office vacancy lingering around 19%, this shift is expected to alleviate some pressure on oversupplied markets.
Multifamily leads the way: Over 70% of office conversions by square footage are going to multifamily use. Since 2018, these projects have delivered 28.5K units, with 43.5K more planned. They're gaining traction due to multifamily's stronger fundamentals, lower vacancy rates, and faster rent growth compared to offices.
Where it’s happening: Manhattan leads the nation in conversions, with 10.3 MSF in the pipeline, followed by DC, Houston, Chicago, and DFW. The DFW area, notable for projects like The Sinclair—a $300M transformation of a former Energy Transfer headquarters into a luxury apartment and office tower—is also the top US metro for CBD conversions.
Past its prime: Many older office buildings, especially large-floorplate properties from the ’70s and '80s, aren’t fit for reuse, leading to more demolitions than conversions. Cities are being encouraged to update their zoning to support redevelopment or the creation of public spaces.
➥ THE TAKEAWAY
Challenges ahead: Even as conversions help remove outdated inventory, CBRE warns the supply of buildings suited for adaptive reuse is finite. High costs for labor, materials, and financing, compounded by tariffs, could slow future projects. Many may delay projects until economic conditions improve or incentives become more attractive.
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✍️ Editor’s Picks
Market insights: Access a comprehensive database of CRE market reports from leading brokerages and research firms, all in one place. (sponsored)
Rapid rebuild: Modular housing is gaining traction in disaster-hit areas as a faster, more affordable alternative to traditional home reconstruction.
Carried interest: Jamie Dimon joins Trump in calling for an end to the carried interest tax break, spotlighting a policy shift that could rattle CRE financing.
Rent rules: Trepp finds rent control offers short-term relief but often cuts property values, curbs development, and risks long-term affordability.
Cautious comeback: Banks are easing back into CRE lending, but tighter standards and a changed market are redefining their role.
Reverse course: Investor outlook for multifamily swung sharply positive in Q125 as rental demand stays strong and supply pressures ease.
Stadium revival: Chicago Fire is privately funding a $650M downtown soccer stadium, jumpstarting a long-delayed mixed-use development in Chicago.
🏘️ MULTIFAMILY
Broker ban: NYC’s new FARE Act ends tenant-paid broker fees, but housing relief depends more on boosting supply than fee reforms.
Back in the game: Francis Greenburger’s Time Equities reenters NYC’s multifamily market with a $13.1M rent-stabilized buy in Brooklyn.
Southern sweep: Harbor Group paid $625M for 3,590 units in the South, seizing on high occupancy and distressed pricing.
Project pullback: Google is selling a key housing site in Mountain View once slated for 1.9K homes, casting doubt on its $1B pledge to deliver 20K Bay Area units.
Rent-setting settlement: WC Smith will pay $1M and stop using RealPage pricing tools with private data to resolve DC rent-collusion claims.
🏭 Industrial
Data center deal: CoreWeave signed a $7B lease with Applied Digital for 250MW of data center capacity in North Dakota, fueling its rapid AI infrastructure expansion.
Reality check: Philadelphia’s industrial market is cooling fast as vacancy spikes, especially in Class-A space.
Miami deal: East Capital bought the 372 KSF Airport Trade Center from Link Logistics, highlighting demand for well-located light industrial assets.
Mega site move: Bit Digital bought a 96-acre North Carolina site for $45M to build a 99MW AI data center, with $1B+ in planned investment.
🏬 RETAIL
Tariff trouble: Gap warns tariffs could cost up to $300M in 2025, cutting into profits by as much as $150M.
Grocery grab: Essential Growth Properties bought a net-leased Kroger in Mississippi for $3.6M, highlighting investor focus on tenant quality.
Liquidity boost: Saks Global secured $350M in financing to avoid vendor payment shortfalls and stabilize operations ahead of the crucial holiday season.
🏢 OFFICE
Leasing momentum: Manhattan office leasing dipped 7.2% in May from April but remained up YoY and well above the 10-year average.
Silicon retreat: BXP is selling off two San Jose properties, backing away from major development plans amid high costs and waning demand for new office space.
Premium push: Charlotte office rents are poised to climb as leasing momentum builds and high-end developments with limited supply hit the market.
Tishman returns: Tishman Speyer made its first NYC office buy since 2019, acquiring the fully leased 148 Lafayette St. in SoHo for $105.5M.
🏨 HOSPITALITY
Youth-fueled recovery: Restaurants hope Gen Z nostalgia can revive sales, but demand remains uncertain as dining habits shift.
Price mismatch: Uncertainty around rates, demand, and valuations is slowing US hotel transactions, as buyers stay cautious and sellers hold firm on pricing.
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📈 CHART OF THE DAY
US market-rate multifamily deliveries dropped by nearly 40K units in Q125, a 25% QoQ decline and the largest in over 30 years, signaling a rapid shift from oversupply to tightening inventory.
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