2025 Was The Year Of The Office Haircut, But The Pain May Bring Gain

Office buildings finally started trading hands this year after a long dry spell brought on by elevated interest rates and a gaping gulch between buyer and seller price expectations. 

While thousands of office sales in some of the country’s hardest-hit markets were welcomed as a sign that a long-awaited rebound might finally be on the way, the sales also represented sometimes bone-deep discounts for sellers trying to offload underperforming assets. As 2025 draws to a close, however, the tide might be turning.

“For the past several quarters, we have seen value pretty much decline continuously, but the rate of decline has been decreasing little by little over the last few quarters. This is the first quarter where we actually see a more definitive increase in the values, especially for office properties,” Trepp senior analyst Eric Bao said.

The first three quarters of the year saw 1,930 properties change hands for a total of $37.6B, a 40.3% increase from the same period last year, according to Commercial Edge, citing Yardi data.

Eye-popping discounts were seen in New York City, where the 920K SF office at 135 W. 50th St. sold for just $8.5M, a 97.5% decrease from its last purchase in 2006; and San Francisco, where a two-tower property on Market Street traded for $177M, a 76% haircut from its 2019 sale.

Downtown Denver’s limping office market saw another two-tower, 900K SF office property sell for just $5.3M, down from $176M in 2013. 

Houston, San Francisco, Manhattan, Washington, D.C., and Dallas saw the highest share of discounted trades at more than 60% of all trades in the first half of the year, according to Yardi. Those markets also logged the most Class-A assets changing hands. 

But 2025 shaped up to be the first year in which office values show measurable signs of stabilizing. The earliest indications of price increases, renewed large-deal activity and rising investment volumes suggest the steepest reductions may have stanched the bleeding.

“Whether or not it has bottomed out, I think still remains to be seen over the coming quarters,” Bao said.

Trepp’s third-quarter property price index, or TPPI, showed that values have largely stopped falling and are creeping back up in some areas. The equally weighted TPPI for all property types increased by 2.8% year-over-year, leaving values about 3.7% above the June 2022 level.

Office properties, however, grew in value faster than the all-property average, rising 5.38% year-over-year in the third quarter.

Growing return-to-office mandates and renewed leasing activity in some markets are likely contributors to the shift, according to Trepp.

But, even with that improvement, office prices remain about 15% below their 2022 peak, underscoring how far values fell before signs of stabilization began to appear. 

The timing also reflects the impact of recent policy shifts. Commercial property values began falling when the Federal Reserve started raising rates several years ago. This fall’s two rate cuts appear to be contributing to the early signs of stabilization. 

The Fed approved two 25-basis-point cuts in September and October that put the federal funds rate between 3.75% and 4%. These lower rates are the primary driver behind the initial price recovery, according to Bao.

New pricing indicators show movement in several parts of the market.

Central business district office prices rose 5.1% year-over-year in September, while suburban office values increased 4.5%, according to MSCI. The third quarter marked the first time since early 2022 that annual price growth for CBD offices outpaced suburban offices, and both categories posted higher-frequency gains that exceeded their annual pace.

Larger-deal activity picked up. Sales over $100M through Q3 have already surpassed 2023 totals and are on track to finish about 30% above 2024 levels, according to JLL. Office investment volume rose 35% year-over-year to $19B in Q3, according to CBRE. 

The broader economic environment will determine whether stabilization holds.

“Historically, during the financial crisis, for example, the CRE property value in general has declined by like 30% or more,” Bao said.

The recovery is still in its early days, and economic uncertainty could introduce the risk of reversing the upward trend. The next several quarters will determine whether the sector is finding its footing or simply pausing before another shift.