The hidden tightness in office markets: a closer look at desirability

The abundance of available office space in recent years reveals a more complex reality, where many properties lack the features that tenants now prioritize.

On the surface, it may seem like there’s plenty of office space available for lease across the U.S., but a closer look at major cities shows that a lot of it doesn’t meet tenants' needs. Financial struggles, outdated amenities, and properties scheduled for residential conversion are just some of the factors that can make spaces less attractive to companies looking to move or expand. Understanding these factors and taking them into account is essential for tenants and landlords when making leasing decisions, especially in bigger cities.

Less than meets the eye: Perceived versus true availability

In recent years, many companies have reassessed the role of physical offices in their operations, leading to a shift in what spaces businesses consider worth leasing. As a result, office markets across the country have seen more empty space, a gradual return of workers, and slower leasing activity. This reveals a market where the true availability of desirable office space is tighter than it initially appears.

In this analysis, we take a look at this trend in four major cities. Our approach evaluates:

Space quality: Fit-out standards, amenities, and design appeal
Building stability: Financial performance and ownership reliability
Future plans: Potential renovations or conversions for alternative uses (e.g., apartments)

By filtering through these lenses, we uncover the gap between perceived availability and the office space that meets today’s evolving tenant expectations, which we refer to as desirable space.

U.S. gateway markets

Of the 189.3 million square feet (msf) of available space across U.S. gateway markets, 36.6 msf is largely deemed undesirable to the average tenant. When potential troubled assets and proposed conversions are also removed, 143.3 msf of truly leasable available space remains, bringing the availability rate from 21% to 16%.

San Francisco

San Francisco’s undesirable office spaces are characterized by a lack of amenities and outdated buildouts that resulted from a pre-2020 surge in leasing demand. This surge allowed landlords to charge high rental rates without having to modernize their office spaces.

We see that 7.6 msf of the 37.4 msf of available office space is deemed undesirable due to these factors. With these assets removed, along with financially troubled buildings and buildings proposed for conversions, 27.8 msf of desirable space is left, bringing the more accurate availability rate from 31.7% to 23.6%.

While many of these factors contributed to the city’s slower-than-average return-to-office rates, San Francisco’s large tech presence and its initial shift toward remote work pushed overall availability to record highs. However, with availability stabilizing and a new era of tech companies emerging—mainly from the industry’s AI subsector—there's significant opportunity for the office market to rebound. Well-equipped assets are expected to recover faster than the rest, especially if owners and landlords can capitalize on an industry that has a high ceiling for growth.

New York City

Within Manhattan’s 96.9 msf of available office space, 20.8 msf is largely considered undesirable. When financially troubled assets and proposed conversions are removed, 71 msf of truly leasable available space remains, dropping the availability rate from 17.8% to 13.1%.

Diving deeper into the market reveals this desirable space is spread across 966 office buildings. 25% of buildings with the most available square feet account for 82% of total available square footage, meaning the magnified availability of truly leasable space is not nearly as abundant or widespread as it seems.

Boston

Downtown Boston offers nearly 19 million square feet (msf) of available office space, which you’d think would give tenants plenty of options. However, there are some spaces—consisting of outdated amenities and design—that fall short of tenant expectations. Those less attractive spaces total about 1.4 msf across Boston. Additionally, properties facing financial challenges and those earmarked for residential conversions cause the pool of truly desirable space to shrink even further, landing at around 17 msf, dropping the true availability rate from 25.2% to 22.6%.

Let’s break this down. The market’s available inventory is spread across 307 buildings around the city. Over 83% of this space is found in just a quarter of the buildings with the highest availability. This emphasizes that the perception of abundant leasable space can be misleading, as most of it's unevenly dispersed across the market and clustered within a small fraction of properties.

Overall, leasing in top-tier facilities across the Greater Boston market continues to perform well, mainly through renewals. To stay competitive for new tenants and fill existing large block vacancies, landlords of lower-tier properties in Downtown Boston have started heavily investing to upgrade their buildings’ amenities.

Washington, D.C.

Washington, D.C.’s office market tells a similar story. Although there's roughly 35.5 msf of available office space, 8.3 msf—or 23%—is considered undesirable due to low leasing velocity, financial difficulties, and anticipated residential conversion. Removing these buildings from the available office space in D.C. paints a more accurate representation of the tenant landscape and brings the adjusted total to just 27.2 msf across 552 buildings, dropping the true availability rate from 23.6% to 18.1%.

The quest for quality continues

The office market is always changing. It's clear that finding high-quality spaces is more important than ever. And while there’s still a lot of office space up for grabs in major cities, it’s important to note that some of the perceived available space is less viable to most tenants, making the truly great spaces that much more coveted. Landlords and tenants remain increasingly strategic in the search and development of well-located, high-quality buildings that have the potential to thrive.

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