THE LEE LENS – Office’s Uneven Recovery: Where the Market Is Finding Its Footing
Houston’s office market is beginning to show measurable signs of improvement, but the recovery remains highly selective. After reversing its 2024 losses, the market recorded 2.44 million square feet of 12-month net absorption while vacancy eased from its recent peak, positioning Houston among the major U.S. markets demonstrating renewed momentum.
That momentum, however, is not being shared equally across the market. Tenants continue to prioritize higher-quality buildings, efficient layouts, stronger amenities, and locations that support a compelling in-office experience, reinforcing the divide between top-tier assets and older commodity space. In this edition of The Lee Lens, we examine the forces shaping the office sector’s uneven recovery and what Houston owners, occupiers, and investors should watch as the market finds its footing.
For the first time in years, the office market has headline numbers that genuinely look better. The U.S. posted a modest annual net absorption gain in 2025, the first since 2019. Leasing picked up. Activity in top-tier buildings improved in several major markets.
But the rebound is narrower than it looks. The better question is not whether office is “back” or still “broken,” but where it is actually healing, why there, and why so much of the market is not participating. The answer lies in four forces: a widening split between high-quality and lower-quality buildings, uneven office-using employment growth, differences in workplace strategy, and a supply environment far more constrained than in past cycles.
REBOUND IS SHOWING UP, BUT ONLY IN CERTAIN MARKETS
Manhattan is the clearest example of a defensible rebound. Leasing reached nearly 42 million square feet in 2025, including 10 million square feet in the fourth quarter alone. Availability fell to 13.9%, its lowest level in five years, with major firms including Bloomberg, Moody’s, Millennium Management, and Ropes & Gray either renewing or expanding. In a market with deep finance-sector demand, rising attendance, and a limited pool of best-in-class space, office demand has reasserted itself in a meaningful way.
Houston also looks materially better than a year ago. The market posted 2.44 million square feet of 12-month net absorption, reversing 2024 losses, while vacancy eased from its recent peak. Phoenix logged more than 816,000 square feet of annual absorption, with both vacancy and sublease space moving down. Nashville turned positive again as office-using employment improved, making it one of only a handful of major metros with year-over-year growth in office-heavy jobs. Dallas–Fort Worth combines stronger utilization with one of the better effective-rent recovery stories among major office markets.
These are markets where tenant demand, building quality, local economic mix, and supply discipline are lining up in ways that create visible traction rather than interchangeable success stories or a broad sector rebound.
QUALITY IS DOING MOST OF THE WORK
The current rebound is quality-led, first and foremost.
Nationally, Class A space absorbed a net 17.74 million square feet in the second half of 2025, while Class B finished the year 10.6 million square feet in the red. Many occupiers are no longer looking for more office; they are looking for better office. After years of hybrid experimentation, footprint reduction, and capital restraint, tenants still seeking physical space are making sharper decisions about what that space needs to do—better locations, stronger amenities, more efficient layouts, upgraded systems, and a more credible in office experience.
Markets with elevated vacancy can still show real strength at the top end. Austin is one of the clearest examples: overall vacancy remains around 25%, yet Class A captured 78% of leasing activity in the fourth quarter. Similar patterns show up in Atlanta, the Twin Cities, Cleveland, and Omaha. Lease-structure data points the same way: weaker buildings are not just leasing less well; tenants are also less willing to commit to them for long periods.
In many markets, demand is being reallocated within the office universe rather than broadening across it. Top-tier assets are seeing tighter conditions and more credible leasing momentum. Commodity Class B and especially Class C buildings are fighting for relevance, not just occupancy.
BETTER ATTENDANCE HELPS, BUT IT DOES NOT CREATE DEMAND BY ITSELF
Utilization is improving. Office attendance has moved higher, and the best-performing office-centric metros tend to be places where employers have pushed harder on in-person work. Lee’s data shows attendance at 77% of pre-pandemic levels in New York and 74% in Dallas, compared with a 64% national average. February 2026 was the strongest post-COVID February for in-office activity yet. Remote work has also receded most in several major office-heavy metros, including New York, Washington, San Francisco, Los Angeles, and Chicago.
But those metros remain the country’s largest remote-work hubs. Utilization is improving; the market is not reverting to a 2019 operating model.
The real constraint on a broader recovery is that office-using employment has not returned with attendance. The major knowledge industries still employ roughly 400,000 fewer workers than their April 2023 peak. Office-using sectors were still down year over year in early 2026, and job openings in those sectors fell sharply over the course of 2025. Recent job gains have been concentrated in health care, construction, and transportation rather than in the office-heavy industries that traditionally drive net office demand.
That dynamic explains one of the market’s sharpest recent contrasts: the first quarter of 2026 delivered the strongest U.S. office leasing volume since mid-2018, yet national office vacancy still rose to a record 21%. Companies are leasing again, but often in smaller blocks with tighter space plans. In many cases, what looks like momentum is re-commitment, consolidation, or selective upgrade rather than a return to broad footprint growth.
Markets tied to finance, government, legal services, and selected tech niches are outperforming for that reason. New York benefits from financial services, higher attendance, and continued demand from AI-linked tech firms. Kansas City’s quieter rebound has been supported by finance and technology demand. Demand is returning where industry mix, employer expectations, and actual business expansion still support physical workplace decisions.
WHY MUCH OF THE MARKET STILL IS NOT PARTICIPATING
What much of the office sector is experiencing is not recovery in the broad sense, but a mix of defensive renewals, smaller footprints, selective flight to quality, and continued pressure on older inventory. Stronger leasing headlines can coexist with stubborn vacancy, elevated concessions, and ongoing stress in lower
quality buildings because, in many markets, activity has improved without producing broad healing.
San Francisco is the clearest example of improvement without full recovery. Leasing activity and fourth quarter absorption both improved meaningfully in 2025, with large deals from firms such as Sierra AI, Docusign, and Carta. Netting just over 900,000 Net Absorption. Yet vacancy remains extraordinarily high
and broader rent recovery is still lagging. The AI boom in San Francisco is broader than just a few major deals. It is a consistently growing trend, fueled by venture capital access and firms that are curating new startups faster than any other U.S. market. This growth helps offset the slow move-out or downsizing of
traditional tenants and old guard technology companies, indicating a shifting dynamic despite the ongoing challenges.
Austin tells a similar story. It has active tenants, a clear flight to quality, and less construction pressure than in the recent past, but it is still working through significant vacancy and churn. Moody’s identified Austin as one of the markets with the largest occupancy losses in the first quarter of 2026, even as top-tier buildings continued to attract demand. A healthy top slice of inventory does not mean the whole market has healed.
Boston and Chicago underscore the same point. Boston still shows negative annual absorption, elevated concessions, and availability far above pre-pandemic norms. Chicago is leasing better buildings, but absorption remains negative. Atlanta adds a useful nuance: much of its activity has been driven by renewals
rather than relocations—a reminder that some apparent strength is still defensive rather than expansionary.
THE SUPPLY SIDE IS DOING MORE WORK THAN THE HEADLINES SUGGEST
The U.S. delivered about 40 million square feet of office space in 2025, the lowest total since 2011. At the same time, more than 30 million square feet was removed from inventory through redevelopment and other removals, leaving net supply growth of just over 5 million square feet. Some of the market’s improvement
is demand-driven; some reflects a competitive set that is barely growing and, in many places, actively shrinking.
That dynamic is visible at the market level. Orange County’s improvement has come not just from renewed leasing in premier buildings but from owner-user acquisitions and the demolition of obsolete suburban campuses for industrial redevelopment. In Denver, a 140,000-square-foot building in the Tech Center is in
the approval process for removal and replacement with multifamily units. Office-to-apartment conversions have reached record levels nationally, though nowhere near enough to solve the sector’s imbalance on their own.
The practical effect is twofold: lower-quality inventory is slowly being worked out of the market, and the best buildings face less new competition than they would in a more normal development cycle. In weaker assets, financing stress is often being managed through extensions rather than fully resolved—another sign that the
sector is still in a sorting process rather than a clean recovery.
WHAT THIS MEANS FOR THE NEXT PHASE OF OFFICE
Office is beginning to heal, but only under specific conditions: where tenants still want physical space, where that demand is concentrating in higher-quality buildings, where local employment and industry mix support office use, and where supply is no longer working against landlords the way it did in prior
cycles. The winners are increasingly identifiable—buildings with the right quality, in markets with the right employment base, serving tenants whose workplace strategies still require physical space. The rest of the market is still searching for relevance, recapitalization, or a new use. That is a narrower story than the
headline suggests, but a more useful one for owners, occupiers, and investors trying to understand where the next phase of office actually takes shape.