Office market emphasizes novelty, wellness in 2025
By Quinn Purcell, Managing Editor
Key Takeaways:
- The traditional office building sector continues to be overshadowed by data center construction
- Office investment has consistently been shrinking, as is down 10% in 2024, with a further decline of 4% anticipated through 2025
- The East North Central and Mid-Atlantic states are expected to expand, with an anticipated investment growth of 8% and 4% this year, respectively
- Location remains the number one factor for office building construction
- Hospitality-driven experiences, wellness amenities, flexibility, and a draw towards the unique make offices attractive to tenants
The issues that persist with the office market are not lost on anyone. With vacancies continuing to rise, property values on the decline (down 5% nationally in 2024, according to Real Capital Analytics reports), and a fierce competition with data center construction, the office market remains “the weakest major commercial sector” in 2025, says Kermit Baker, Chief Economist, American Institute of Architects (AIA).
The recent AIA’s Consensus Construction Forecast Panel projects a 3.5% decrease in national spending on office buildings this year, with an additional 1.3% decline in 2026. This is a shame, especially as contractors were cautiously optimistic going into 2025 about the prospect for more projects. But persistently high interest rates and a raft of drastic policy changes have made the outlook much less certain, according to Ken Simonson, Chief Economist, Associated General Contractors of America (AGC).
The Trump Administration’s announcement of steep, widespread tariffs have caused developers and owners to put projects on hold, and the possibility of “mass deportations” of immigrants threatens the construction industry trades across the board. Furthermore, contractors remain anxious about material pricing for projects already under contract. After months of stable or falling prices, the cost of diesel fuel, steel, copper, and other materials have gone up, according to Simonson.
The Weaknesses of the Office Market
According to the Yardi Matrix Office National Report for January 2025, the national vacancy rate at the end of 2024 was nearly 20%, an increase of 150 basis points over the last 12 months. Many economists do not anticipate that vacancies will fall in 2025 despite return-to-office mandates from major companies like Amazon. In fact, vacancy rates are projected to peak either by the end of the year or in 2026, according to Moody’s.
Additionally, commercial real estate loans in the office sector are showing significant weaknesses, with delinquency rates reaching historical highs. It's expected that they will continue to climb, according to Brian Strawberry, Chief Economist, FMI.
Many building owners have delayed their debt obligations until 2025 and 2026, hoping for a future decrease in interest rates. However, last year’s “extend and pretend” strategy was thrown off course by the Federal Reserve’s recent policy changes, which have raised new concerns about inflation. Since September, the Fed has cut rates by 100 basis points and intends to reduce them by another 100 basis points over the next two years.
There is no immediate relief expected for financing office or mixed-use projects in the next two years, and possibly longer. Even if financing conditions improve, challenges like high vacancies and stabilization of capitalization rates and property valuations may still persist.
Data Center Demands
While data centers remain just a subsegment of the broader office category, its impact is anything but little. The demand of cloud computing and artificial intelligence has driven growth for data centers, whose construction spending has nearly doubled since 2020. Currently, data centers account for more than 25% of office segment spending, up from just 10% a few years ago, according to Strawberry.
Ignoring the growth in the data center sector, traditional office investment has consistently been shrinking—down 10% in 2024, with a further decline of 4% anticipated through 2025. A survey of real estate investors by Private Equity Real Estate (PERE) reported that offices ranked last in terms of real estate investment interest for 2025. While 46% of respondents planned to reduce their investment in this sector this year, only 8% planned to increase their office holdings.
Hot and Cold Markets Across the U.S.
The story is not the same across the country, however. When considering traditional office construction spending at a regional level, FMI’s first quarter 2025 Census Divisional construction put-in-place (CPiP) forecasts reveal the West South Central and Mountain states are projected to be the weakest areas of the country this year, with declining investments exceeding 10% each. In contrast, the East North Central and Mid-Atlantic states are expected to expand, with an anticipated investment growth of 8% and 4%, respectively, through 2025.
“With a slowdown in investment, we foresee a potential slowdown or decline and reevaluation of economic development across several historically high growth cities, including Nashville, Denver, Raleigh, Atlanta, and Dallas, among many others,” says Strawberry.
Where the office market shines, however, is in adaptation. The evolving landscape favors clever and novel ways to make an office building work for all parties.
Types of Office Buildings in 2025
Where the market stands today, new construction of office buildings has fallen by the wayside. That isn’t to say there’s no interest in high-quality new assets, however. Gensler’s Design Director and Principal, Kristopher Stuart, finds that there is strong interest in new buildings in desirable locations across all markets. But interest doesn’t equal opportunity, as it is difficult to get financing for newly built office towers (those that are financed are usually part of a corporate campus or privately funded, according to Neil Schneider, Director of Design, Interiors, HOK’s Chicago studio).
“Companies are being strategic with their budgets, prioritizing ways to do more with less rather than investing in new construction,” says Alysia Radicia, NCIDQ, Interior Designer, Partner, and Commercial Market Co-Leader for RDG Planning & Design. “Rental rates and cost per square foot for commercial office space can be 30–40% lower than new construction, making it an attractive option for tenants.”
The majority of project types occurring today are renovations, interior fit-outs, and adaptive reuse. Speculative office development is minimal. Many firms have expressed this shift, though some firms like IA Interior Architects and Spectorgroup have seen a “fair mix” of project types that include new construction. What matters most is not whether the building is brand new, but what the space brings to its tenants.
Location is Key
Many firms agree on one thing: Location is still key. An office space in an urban hub is unbeatable, with walkability are the forefront of firms’ minds.
Proximity to restaurants, retail, coffee shops, park spaces, and boutique gyms are “very important to the office experience,” says Lindsay Wilson, President and Interiors Sector Leader, Corgan. This also includes easy access to major transportation hubs.
In a city like Los Angeles, achieving this level of prestige is challenging in areas facing retail and security issues. Downtown LA struggles despite having high-end office buildings, while Century City remains a “home run,” offering the right mix of location, amenities, and stability, according to Mathew Chaney, AIA, DBIA, LEED AP, Partner, EYRC Architects.
In Midwestern cities, the office is not as scrutinized as it is in much larger metros. The office remains essential, but there is less of a concern about long commute times and their impact on workplace strategies. While Midwest offices focus their design attention on collaboration and focus work, according to Radicia, larger metro office spaces have different priorities.
Wellness, Hospitality Experience Top-of-Mind
Offices are increasingly becoming influenced by hospitality. The office of the future incorporates health-forward amenities like advanced air purification, touchless technology, and access to outdoor environments. Kyle Jeffrey, Managing Director at IA Interior Architects’ Dallas studio also states that sustainability will be “non-negotiable.”
Wellness and sustainability are important, if not essential, factors for tenants. Biophilic design takes center stage alongside enhanced air filtration and energy-efficient systems. Touchless hydration stations, healthy food policies, creating meditation rooms or nap pods are “popular in today’s corporate environment,” finds Scott Lyons, National Commercial Core Market Leader, DPR Construction.
The “flight to quality” trend is driving investment in A+ and A++ properties, especially in prime New York areas like Park Avenue, Grand Central, Hudson Yards, and the New Penn Station Districts, finds Robert Finger, AIA, Founding Partner, Fogarty Finger. Here, landlords are upgrading buildings to attract top-tier tenants with premium amenities and hospitality-driven experiences.
Childcare and concierge-like wellness services are becoming popular, especially in the quest for good work-life balance and employee retention, says Scott Spector, AIA, Principal, Spectorgroup.
Indoor air quality and healthy environments are still top of mind, as well as a stronger focus on WELL and FitWell in addition to the basic LEED certifications, finds Mark Buskuhl, Partner and Global Practice Director, Commercial/Mixed Use, and Kate Davis, Partner and Commercial Interiors Director of Planning & Strategies, HKS.
Amenities that focus on establishing a residential feel reward those who have returned to the office with a comfortable, hospitality-driven experience. Some companies are even starting to invest in IoT (internet of things) devices such as personalized lighting, temperature controls, and occupancy tracking to provide more sustainable environments, according to Lyons.
Firms like Spectorgroup have seen an increasing amount of building technology being specified for the office sector. In these smart spaces, employees can walk into an office that will “sense” who it is, initiating tasks like adjusting the temperature to the employee’s liking or playing their favorite song.
“Essentially, it needs to be easy,” says Schneider. “Easy to get to, easy to get into, and easy to operate in.”
Some traditional amenities are still to be expected, however. Fitness centers, pop-up food stations or restaurants, engagement areas, covered car and bike parking, event spaces, and walking paths aren’t going anywhere. The difference from the past is a willingness to have many of these amenities within the walkable district than request they be within the building, according to Sim Nabors, RID, LEED AP, Principal and Director of Interior Design, RATIO Design.
As for sustainable materials, companies want to make investments that stand the test of time rather than choosing materials that require frequent replacement, according to Radicia. She compares selecting materials to the shift we’ve seen in “fast fashion”—moving away from short-lived selections in favor of long-lasting, durable alternatives. For example, rubber flooring, while more expensive upfront, has a 30-year lifespan compared to luxury vinyl tile (LVT), which may last only 10 years or less before showing wear.
Flexibility All Around
Besides wellness, flexibility is top-of-mind for tenants. Not just flexibility of the space—like reconfigurable furniture and walls—but flexibility in working hours. Flexible social spaces. Flexible leasing options with coworking elements and communal amenities are increasing in frequency, says Spector.
“Whether a tenant has access to shared common space or has ability to expand or contract its own operations and staffing, these are ‘amenities’ that allow a business tenant to thrive,” says Scott Demel, AIA, LEED AP BD+C, CPHD, Partner, Marvel.
IA Interior Architects has helped clients navigate the shifting workplace dynamics by designing modular layouts, tech-enabled workspaces, or creative adaptive reuse strategies to future-proof offices.
Gensler conceived the notion of a “Perpetual Asset”, a building design that can accommodate a variety of tenant and/or program types, and with the ability to easily adapt as leasing strategies flex over time.
“On the scale between practicality and aesthetic, it grades closer to practicality, but the potential value to owners and developers may be quite attractive,” says Gensler’s Stuart.
Differentiation Makes the Difference
Overall, the definitive answer to creating a Class A+ office space is differentiation. Uniqueness.
“What we provide that is distinct and different from competing developments, location, and context can be a huge differentiator," says Stuart.
This is one area where adaptive reuse excels. The sustainable reuse of existing buildings has gained momentum not only as a way to decrease environmental impact and construction costs, but as a creative differentiator.
Another big differentiator in the office space is the utilization of mass timber. As it’s becoming more popular in Class A office buildings, an emphasis on sustainable design follows. However, in regions like the Midwest, mass timber hasn’t seen widespread adoption as it comes at a higher premium, according to Radicia.
“The market is seeing a flight to quality—inspiring, unique spaces that exemplify the best of adaptive reuse and creative office design,” says Chaney. “Tenants are drawn to buildings with character, authenticity, and ideally, a strong connection to the outdoors.”
Firms are creating spaces that feature more meaningful interactions, even if the space itself is smaller. Many companies are looking to reimagine existing spaces to maximize efficiency, modernize design, and enhance the employee experience, according to Jeffrey.
In the end, although the office market may be coming off the heels of a rough 2024, firms are looking to find creative ways to combat the challenges that persist.
