Which submarkets can support new development?

Office development activity in the U.S. has experienced an unprecedented decline in the last two years: groundbreakings for the past six quarters have averaged under 1.2 million s.f., while the previous all-time low was 1.3 million s.f. of groundbreakings in Q4 2010.

While rising construction costs and a surge in the cost of construction financing have made development less economically feasible, tenants continue to aggressively seek out high-end newer spaces for upgrade, driving elevated rents and low vacancy rates in some markets.

At the outset of 2025, six major submarkets are over 90% leased and have asking rents over $75 per s.f. in newer space: Hudson Yards in Manhattan (95% leased, $210 asking rent), Menlo Park in the Bay Area (98% leased, $150 asking rent), the Seaport District in Boston (94% leased, $97 asking rent), the Southwest submarket in Washington, DC (93% leased, $95 asking rent), Santa Clara in the Bay Area (95% leased, $79 asking rent), and the West Loop in Chicago (91% leased, $800 asking rent). Additionally, Brickell in Miami; Sunnyvale, San Mateo and Mountain View in the Bay Area; and East Cambridge in Boston are all over 85% leased with over $100 per s.f. high asking rent.

In the absence of additional development activity, increasing supply constraints in these markets will continue to drive aggressive rent growth for both Tier 1 as it becomes scarce, as well as Tier 2 properties that absorb spillover demand that the shrinking new construction segment can no longer accommodate.