Office market set for uneven recovery

The office market is showing signs of recovery, but it will be uneven, with success depending on identifying properties that meet post-pandemic tenant and investor needs. 

Tom Leahy

Offices failing to meet these standards risk becoming obsolete and will require significant investment or conversion to other uses, according to Tom Leahy, MSCI’s head of Real Assets Research for EMEA.
While the global office market saw over $4.5 tn (€3.9 bn) invested between 2007 and 2021, deal volumes have since plummeted. However, major players like Blackstone and Norges Bank IM are beginning to reinvest in gateway cities in 2025, signaling a return of investor interest.
The slowdown was caused by hybrid work models, the obsolescence of buildings lacking modern features and sustainability, and the wider economic downturn spurred by rising inflation and interest rates. This led investors to favor sectors like industrial, multifamily, data centres, and student housing.
Occupancy rates are recovering, albeit at different paces globally, with Asian cities nearing pre-pandemic levels. Vacancy rates in Europe and North America are stabilizing or decreasing, and leasing activity has increased in key cities like London and Manhattan. Some large corporations, like Amazon and JPMorgan Chase, are mandating a full return to the office, but hybrid work remains prevalent.
The mixed picture creates investor uncertainty, but the office is not obsolete. Companies are investing in modern workspaces to attract employees, making asset selection crucial. "Commodity" offices face further value decline, similar to the impact of changing consumer habits on retail properties.
Transaction prices appear to have bottomed out in gateway cities in late 2024, drawing investors back in. Blackstone has invested nearly $4 bn (€3.4 bn) in offices in 2025, while NBIM has invested over $2.4 bn (€2.0 bn) since late September 2024.
The recovery is not uniform, with rental growth concentrated in high-quality, sustainable offices. Lower-quality properties and those lacking environmental certifications are lagging. This trend is evident in cities like London and Paris.
The shortage of top-tier offices and the price correction for lower-quality assets are creating opportunities for developers willing to take on redevelopment risk. However, some offices are being converted to other uses, reducing vacant stock and benefiting owners of better assets.
In the new cycle, asset selection will be critical for outperformance. The focus will shift from scale to precision, with selectivity differentiating value traps from value creation in a fragmented global office market.