The Office-Market Recovery Is Here, Just Not Everywhere

Between January 2007 and December 2021, more than USD 4.5 trillion was invested in the global office market — far more than in any other sector and exceeding industrial and apartment properties combined. However, office deal volumes have since plummeted to record lows across many of the world’s largest property markets. 

Still, there are signs that investor interest in the sector is returning, with bellwether players such as Blackstone and Norges Bank Investment Management (NBIM) starting to deploy capital in the office market in gateway cities in 2025. The recovery, however, will be uneven because of the structural challenges facing the sector, making asset selection critical in the next cycle.

The slowdown stems from a mix of factors: the shift to a hybrid working model post-pandemic, the growing obsolescence of buildings that don’t meet modern workplace or sustainability standards and a wider market slowdown caused by the spike in inflation that triggered the end of the lower-for-longer interest-rate regime. In response, buyers intensified their focus on sectors perceived to have stronger structural tailwinds — such as industrial, multifamily, data centers and student housing. For a time, offices became a dirty word.

MSCI, data as of July 11, 2025. 

After years of falling take-up, rising vacancies and falling values, more-positive indicators are starting to surface. Office occupancy continued to recover in 2024, albeit at a varying pace. Asian cities are now close to pre-COVID-19 norms, while North America, Europe and parts of Australasia remain behind to varying extents.¹ Vacancy rates remain elevated in European and North American cities, but they are either stabilizing or starting to decrease. Leasing activity has also picked up in key global cities. In Q4 2024, London take-up was 32% ahead of the 10-year average,² while Manhattan office leasing was up 36% on the 10-year monthly average in January 2025.³ 

MSCI data as of July 11, 2025. 

At the same time, several major corporations have moved to bring employees back to the office. Amazon now requires its 350,000 office-based staff to work on-site five days a week, and JPMorgan Chase has implemented a similar policy. Recent media reports suggest that HSBC is seeking additional space in several global cities to meet increased demand for desk space from employees returning to the office.⁴ The move marks a reversal from the bank’s earlier expectation that hybrid work would reduce its overall footprint.

Return-to-office mandates may help to increase office occupancy rates. But many companies seem content to allow staff to mix home with office working. This approach is still impacting office markets: For example, Meta, which has a three-day-a-week policy for most employees, is reportedly looking to dispose of more than two million square feet of empty offices in San Francisco.

In the investment market, average transaction prices look to have bottomed out in several gateway cities in the second half of 2024. This, combined with improved metrics from the occupier market, has drawn some notable players back into the sector. Blackstone has invested just under USD 4 billion in offices so far in 2025, including a USD 2.6 billion acquisition of an office-led mixed-use property in Tokyo. Other deals include stakes in 1345 Avenue of the Americas in New York (valuing the asset at USD 1.4 billion) and two Meta-leased offices in Washington, DC, valued at a combined USD 545 million.  

MSCI data as of July 11, 2025. 

Elsewhere, NBIM has invested more than USD 2.4 billion in global offices since the end of September 2024, acquiring partial or full interest in assets in London, Paris, Boston, San Francisco and Washington, DC. According to recent media reports, Blackstone and NBIM are among the shortlisted bidders for an office complex in central Paris — CityQuartier Trocadéro — which is being sold by German player Union Investment for approximately EUR 700 million.⁵

While there are signs the market is moving into a new phase, the recovery is unlikely to be uniform. The MSCI UK Quarterly Property Index shows rental growth in Central London offices is concentrated in higher-quality assets. Lower-quality, high-yielding properties are seeing a much more modest uplift. Similarly, offices with strong environmental ratings are commanding a premium because of the emphasis many investors and occupiers are putting on the drive toward net-zero emissions, while those without are falling behind. This divide isn’t limited to London. In Paris, central-business-district office rents continued to rise in 2024, while La Défense rents fell for the second year running with vacancy rates well above their long-run average.  

MSCI data as of July 11, 2025. 

The apparent shortage of high-quality offices and the ongoing price correction for lower-quality assets is starting to provide an opportunity for players willing to take on development risk to bring assets back to the top of the market. Recent MSCI research shows that offices bought for redevelopment purposes typically outperform those bought, held and later put through redevelopment. The research also shows the best time to enter the market is during periods of distress, emphasizing the window of opportunity this downturn has created. In the City of London, Malaysian property company IJM Corp. Berhad bought 25 Finsbury Circus from TPG for USD 91 million and plans to spend close to USD 190 million to renovate the asset. In San Francisco, DivcoWest and Blackstone are redeveloping 199 Fremont, a 400,0000-square-foot office property in downtown San Francisco, to create a “next-gen workplace experience” targeting occupiers from the technology sector.⁶ 

Conversely, while some offices are ripe for renovation and reintroduction into the market, others are being taken out of the food chain altogether and acquired for conversion to other use classes. This should reduce some of the overhang of vacant and obsolete stock and benefit owners of higher-quality assets.  

Outperformance during the prior property cycle was driven as much by sector allocation as asset selection — broadly, investors who made the call to move into beds and sheds did better than those who did not. Without the tailwind from lower rates, outperformance in this next cycle will likely rely on asset selection and working those assets to drive returns. This is especially relevant given the many geopolitical uncertainties that have the potential to keep interest rates higher for longer. In this context, the fragmentation of the global office market can provide opportunities for investors. Offices aren't dead, but the playbook has changed: Precision will outperform scale, and selectivity will be the difference between value trap and value creation.