The U.S. office market is experiencing an unexpected scarcity of premium space as demand outpaces supply. Driven by a fifth consecutive quarter of positive net absorption and shrinking inventory, effective rents for trophy properties have surged over 20% compared to the third quarter of 2025, according to data from JLL reported by cnbc.com.
Occupiers Increase Footprints as Trophy Rents Rise
- Occupiers added 6 million square feet of space in Q3, with signed leases averaging a 13% footprint increase.
- National office inventory has lost 45 million square feet since the end of 2023 due to conversions, redevelopments, and minimal new deliveries.
- Effective rents for first-generation trophy spaces are up over 20% compared with the third quarter of 2025, while second-generation space rents increased 10% annually.
The Shift From Downsizing to Expansion
Just two years ago, the main theme in office was downsizing. The recent JLL report highlights a sharp reversal, noting that occupiers added 6 million square feet in the third quarter of this year alone. This marks the fifth consecutive quarter of positive net absorption across the sector.
Employers are now expanding their physical footprints. Technology firms are leading this rebound, driving the highest net absorption rates in metropolitan markets such as San Francisco and Austin, Texas.
Office Inventory Shrinks Amid Record Low Deliveries
While demand accelerates, available supply continues to contract at a rapid pace. Only 3.5 million square feet of new office space was delivered in the third quarter, matching the near-record lows recorded in the second quarter. Meanwhile, 9.6 million square feet of inventory was permanently removed through building conversions and redevelopments.
Altogether, national office inventory has shrunk by 45 million square feet since the end of 2023. With only 23 million square feet currently under construction nationwide, JLL characterizes the current market dynamics as a “flight to scarcity.”
| Metric | Q3 Data | Trend vs. Previous Period |
|---|---|---|
| New Deliveries | 3.5 million sq. ft. | Matching near-record lows |
| Space Removed | 9.6 million sq. ft. | Via conversions and redevelopments |
Financing Constraints Stifle New Construction
Despite rising rents for high-end properties, new development remains subdued. Commercial real estate finance executives point to a lack of equity capital as the primary bottleneck for new projects.
Now is the perfect time to be putting a shovel in the ground, except no one’s going to do it,
said Willy Walker, CEO of Walker & Dunlop, speaking on CNBC’s “Closing Bell Overtime.” Walker noted that current office construction sits at roughly 9% of normal annual supply. Without incoming equity capital to fund new builds over the next two to three years, the market will remain supply-constrained, pushing lease rates even higher.
Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial advice.
