The U.S. office market is undergoing a fundamental transformation in 2025, driven by shifts in work culture, technology, and changing business needs. As companies adapt to the post-pandemic world, the demand for office space has dramatically decreased, particularly in major urban centers. Remote and hybrid work models, which have become the norm for millions of workers, have reshaped the commercial real estate landscape, leading to a rethinking of office space utilization across the country.
Remote Work: A Game-Changer for Office Space Demand
The COVID-19 pandemic forced businesses to rapidly adopt remote work, and this shift has continued into 2025, even as the world returns to a semblance of normalcy. According to a Pew Research Center study, approximately 60% of U.S. employees are still working from home at least part-time, and about 30% of the workforce is fully remote. While some companies have called employees back to the office, many are offering flexible or hybrid schedules, giving employees the choice to work from home several days a week.
This change has led to a significant decrease in demand for traditional office spaces. CBRE, a leading global commercial real estate services firm, reports that office vacancies in major cities like New York, San Francisco, and Chicago have reached unprecedented levels. In New York City alone, the vacancy rate in office buildings stood at 21% in early 2025, a stark contrast to pre-pandemic figures of around 10-12%.
Companies are increasingly questioning the need for large, long-term office leases. This has resulted in an uptick in shorter-term leases, with businesses opting for more flexible office spaces that allow for greater adaptability as their workforce’s needs evolve. In addition to reducing the size of their office spaces, many organizations are also shifting towards co-working spaces such as those provided by WeWork, Spaces, and Regus. These spaces offer flexibility and enable businesses to scale up or down without the burden of traditional leasing commitments.
Shifting to Hybrid and Flexible Workspaces
The office environment is not disappearing entirely, but it is being redefined. Companies that are maintaining office space are designing it to cater to the needs of hybrid workforces. The focus is now on collaborative spaces, meeting rooms, and flexible workstations rather than individual desks and cubicles. The typical office layout, which once featured rows of cubicles or individual offices, is being replaced with open spaces that can be adapted to a variety of workstyles.
One of the significant challenges for employers is the evolving employee experience. While remote work has proven to be effective in many cases, companies are facing difficulties in fostering collaboration, creativity, and a strong company culture. This has led to the emergence of hybrid workspaces—office spaces that are designed to be more than just places to sit and work but are designed to foster connection and collaboration.
These spaces often include interactive meeting areas, wellness centers, and social hubs where employees can meet and exchange ideas. Hot-desking—where employees have no assigned desks but instead choose workspaces daily—is becoming more common. This encourages collaboration and flexibility while reducing the overall square footage required by companies.
Repurposing Office Buildings: From Workspace to Living Space
With office vacancies rising, many commercial real estate developers are beginning to repurpose older office buildings into other types of properties. The trend of office-to-residential conversions is becoming increasingly common in urban areas, especially in places like San Francisco, Los Angeles, and Chicago, where the demand for housing continues to outpace supply.
According to the Urban Land Institute, over 40% of office buildings in major U.S. cities are considered obsolete or underutilized, making them prime candidates for repurposing. These buildings are being converted into apartments, condominiums, or mixed-use developments that combine residential and commercial spaces. For example, in downtown San Francisco, several office buildings are being transformed into affordable housing in response to the city’s ongoing housing crisis.
Additionally, state and local governments are offering incentives to developers to encourage these conversions, recognizing that repurposing office buildings can be a sustainable way to address both the affordable housing shortage and the glut of office space. In Los Angeles, the city has launched an initiative to repurpose office buildings near public transportation hubs into housing units. This initiative aims to reduce the city’s housing deficit while utilizing underperforming office spaces.
The Future of U.S. Commercial Real Estate
Looking to the future, the commercial real estate sector will continue to evolve. While the demand for traditional office space may remain subdued in certain markets, other areas of commercial real estate, particularly industrial real estate and logistics, are thriving. The rise of e-commerce, for instance, has led to a boom in demand for warehouses and distribution centers. In fact, the industrial real estate market has been one of the strongest performers since the pandemic, with warehouse space near major urban centers in high demand.
As more companies embrace remote and hybrid work, the demand for flexible office solutions will continue to rise. Meanwhile, the demand for real estate technology solutions that allow businesses to better manage their office spaces, track employee preferences, and optimize space utilization will also increase.
The future of commercial real estate is undoubtedly hybrid—a blend of office, residential, and flexible spaces, all designed to meet the evolving needs of businesses and their employees. Developers and investors who adapt to this shift will likely see success, while those who fail to embrace change may struggle as the market continues to evolve.
