U.S. Office Overview For the second consecutive year, Q4 has established a new post-pandemic high for quarterly leasing volume. Activity grew 4.4% QoQ to 55.1 million s.f., bringing yearend totals to 207 million s.f., up 5.2% over 2024. Largescale transactions over 100,000 s.f. bounced back to a significant degree, with roughly 15% more large deals closing in 2025 than 2024, despite a lull in large leases during Q2 amid heightened volatility surrounding trade policy shifts. Larger markets have outperformed in the past year: gateway markets grew 15% YoY, compared to +3.5% for secondary markets and +3.3% for tertiary markets. Sun Belt growth markets held steady in 2025, with leasing volume increasing 0.8% YoY—however, that region has returned to 94% of pre-pandemic peaks while other regions are further discounted from pre-pandemic levels. Leading markets included smaller Sun Belt cities and gateway markets: Charlotte (+49% YoY), Silicon Valley (+36% YoY), Chicago (+33% YoY), San Francisco (+27%) and Phoenix (+24%). Leasing continues to be highly concentrated in newer assets, highly-amenitized Class A buildings, and vibrant Lifestyle Market ecosystems. For the second consecutive quarter, the U.S. saw a meaningful uptick in total occupied space, with 8.1 million s.f. of positive net absorption to conclude the year, tipping annual totals into marginal gains of 6.4 million s.f. This occurred in tandem with two factors that created significant chunks of negative net absorption in manners that were independent of the broader recovery narrative. In the early portion of the year, roughly 10 million s.f. of federal leases were terminated, elevating occupancy losses in Q1, and over the course of the year, almost 40 million s.f. of inventory removals drove an additional ~10 million s.f. of nominal occupancy loss as buildings with Job openings (thousands) Real personal consumption expenditures ($ trillions) Job Openings Stabilizing, but Continue to Fall Slightly Consumer Spending Growth Continues at Slower Pace 14,000 12,000 10,000 8,000 6,000 4,000 2,000 $17 $16 $15 $14 $13 $12 $11 $10 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2020 2021 2022 2023 2024 2025 small amounts of occupied space were permanently removed from inventory. Total availability peaked in 2024 Q2 and has fallen by over 60 million s.f. (1.3% inventory) in the past six quarters. Total vacancy peaked in 2025 Q2 and has fallen by 12 million s.f. (0.2% inventory) in the past two quarters. Consistent with leasing activity, the leading markets for occupancy gains in 2025 were dominated by coastal gateways and mid-sized Sun Belt secondary cities: New York (+2.6% inventory), SF Peninsula (+1.9% inventory), Silicon Valley (+1.3% inventory), Phoenix (+1% inventory) and Charlotte (+0.8% inventory). Development continues to slow in 2025: deliveries fell 17% to under 25 million s.f., while almost 40 million s.f. was removed from inventory for conversions or redevelopments. Overall inventory declined by 0.3%, the second consecutive year that U.S. office inventory has fallen. Compounding pressures is a lack of groundbreaking activity: just 7.4 million s.f. of projects broke ground, declining from the record low of 7.6 million s.f. in 2024. 3.6 million s.f. of this year’s groundbreakings were comprised by three largescale projects that broke ground in New York during the middle of the year (570 Fifth Ave., 70 Hudson Yards and 343 Madison Ave.). While Trophy development proposals are emerging in gateway markets and select high-rent secondaries, developers are exercising high levels of caution and are largely unwilling to break ground without considerable preleasing executed at near record rental rates. While this offers a path forward for rent-agnostic tenants seeking best-in-class space, it is doing little to alleviate the broader pressures around net negative inventory. Traditionally, development activity would be expected to increase in 2026 following the growth in investment activity in 2025, however that acceleration may be delayed by a continued avoidance of office investments by institutional capital providers. / 37 / MANULIFE US REIT
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