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Office construction is continuing to decline as developers find it hard to break ground on projects without large preleases.
At the end of the first quarter, the 14 leading office markets had a combined 20.7M SF under construction, down from 24.8M SF at the end of 2024 as completions outpaced new starts during the quarter, according to Colliers.
Almost half of the under-construction pipeline is expected to complete this year, with another 7M SF expected to deliver in 2026.
Only three projects broke ground in the first quarter of 2025, according to Colliers: two in South Florida and one in Chicago.
South Florida, Dallas And Manhattan were the only markets with over 2M SF of office under construction, while Boston, Los Angeles and the Puget Sound markets were the only others above 1M SF.
Just 8.2% of South Florida’s 2.4M SF pipeline was preleased, while 71.6% of Dallas's 2.9M SF pipeline and 90.9% of Manhattan's 2.8M SF of construction was preleased.
Tenants preleasing space were predominantly in the finance, insurance and real estate segment, which made up 61.2% – roughly 6.3M SF – of the total commitments. Consumer goods tenants followed with 1.1M SF committed, followed by technology with 600K SF and sports and entertainment with 508K SF.
The slowdown in office construction is in line with higher construction costs, lower tenant demand and a harder financing environment for the asset class as lenders want to see higher percentages of preleased space before making deals. The slowdown in office construction could help the struggling sector boost occupancy in higher-quality buildings as more tenants are looking for space in trophy and Class-A properties.
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