The U.S. office market, once bracing for a cataclysmic downsizing fueled by the remote work revolution, is now witnessing a slow but discernible stabilization driven by an entirely new leasing philosophy. Contrary to dire forecasts of a 50% contraction, companies are moving away from metrics based on average daily attendance and are instead focusing on accommodating their workforce on “peak” in-office days. This fundamental shift in strategy is reshaping the commercial real estate landscape, transforming the narrative from one of inevitable collapse to one of pragmatic adaptation. This evolution is buoying demand and raising a critical question: Is this new approach robust enough to secure the long-term future of the traditional office lease?
The New Leasing Calculus: Planning for the Peak
From Average Attendance to Peak Days
The operational reality of hybrid work has forced a strategic pivot among employers, fundamentally altering the calculus of office space requirements. The emerging consensus highlights the critical need to provide an adequate environment for the maximum number of employees present on the busiest in-office days, which have consistently been Tuesdays and Wednesdays. This principle has become the primary driver sustaining market demand, directly countering earlier, more severe forecasts that suggested tenants would slash their office footprints in direct proportion to their remote work schedules. Companies recognize that failing to provide a sufficient number of desks, meeting rooms, and collaborative areas on these high-traffic days creates a frustrating and counterproductive employee experience, undermining the very rationale for maintaining a physical office. This focus on peak capacity ensures that even with a three-day in-office week, the required square footage remains substantial, preventing the most drastic levels of space contraction that were once widely anticipated.
This strategic imperative has shifted the conversation from how many employees are absent to how many are present at any given time, ensuring that office spaces remain essential hubs for corporate activity. Businesses cannot risk alienating their talent by failing to provide the necessary resources during peak collaboration periods. Consequently, leasing decisions are now governed by the need to maintain a functional and positive workplace, even if it is not fully utilized every day. This has led to a market where, despite a sustained period of high vacancy and negative absorption, the rate of contraction has slowed significantly. Furthermore, this trend is bolstered by key supply-and-demand dynamics, including a reduction in new construction that is helping to curb the glut of available space, allowing demand to gradually catch up. At the same time, the burgeoning artificial intelligence sector has emerged as a significant new source of demand, providing a timely and powerful boost to the market’s recovery efforts.
Right-Sizing, Not Downsizing
While the market has experienced a reduction in the amount of space leased per employee, the decline has proven far more modest than the dramatic figures predicted during the pandemic’s early stages. Current data indicates that the average space per office-using job has fallen by approximately 11%, a stark contrast to initial forecasts that warned of potential drops of up to 40%. This moderate adjustment suggests that businesses have found a new equilibrium, “right-sizing” their footprints to align with the practical realities of a hybrid schedule rather than engaging in a wholesale elimination of their physical presence. This recalibration reflects a deeper understanding that the office serves a crucial role in fostering culture, collaboration, and innovation—functions that cannot be fully replicated in a remote setting. The data points not toward a collapsing market but toward one undergoing a necessary transformation to a new and enduring operational standard that balances flexibility with the need for a central corporate hub.
This trend toward stabilization is further evidenced by forward-looking demand indicators, which paint a surprisingly optimistic picture of tenant sentiment. Research reveals that over 70% of tenants actively seeking new office space are looking to either maintain their current footprint or expand it. This significant finding demonstrates a major shift in corporate strategy, suggesting that most tenants have already completed their post-pandemic spatial reassessments and are now planning for stability or growth within the established hybrid framework. This forward-looking demand signals that the period of deep uncertainty and reactive downsizing is largely over for a significant portion of the market. Instead of continued contraction, the focus has shifted to optimizing existing space and making long-term commitments that support a flexible but permanent return to a shared physical workplace, providing a solid foundation for the market’s continued, albeit gradual, recovery.
Balancing Act: Market Realities and Future Risks
The Coming Wave of Lease Expirations
Despite growing optimism and signs of stabilization, the office market faces a significant headwind that could introduce renewed volatility. A major point of uncertainty stems from the vast number of pre-pandemic leases yet to expire. According to recent industry reports, approximately half of all U.S. office leases signed before 2020 are still active, representing a massive volume of space that has not yet been reassessed under the new hybrid work paradigm. An estimated 1.4 billion square feet of office space is scheduled for lease expiration between 2025 and 2027. This impending wave of expirations presents a critical juncture for the market, as it will give a large and influential cohort of tenants their first major opportunity to formally align their real estate commitments with their now well-established flexible work policies. This lingering risk could disrupt the current recovery trajectory as companies decide whether to renew, downsize, or relocate.
The decisions made during this upcoming cycle of expirations will serve as a definitive stress test for the market’s resilience and the long-term viability of the peak occupancy model. While some tenants may have already right-sized through subleasing or early terminations, this wave represents the first chance for many to renegotiate terms from the ground up, with several years of hybrid work data to inform their choices. The outcome will likely be a mixed bag; some companies may find their current space perfectly suits their peak needs, while others may seize the opportunity for a significant reduction in their footprint. The collective impact of these decisions will shape supply-and-demand dynamics for years to come, determining whether the market continues its steady path toward equilibrium or experiences another period of turbulence driven by a sudden increase in available space and downward pressure on rental rates.
A Tenant-Favorable Market
For corporate leaders and CFOs, the current landscape presents a nuanced but clear opportunity to optimize real estate costs as the market continues to find its footing. The prevailing model of an average of three in-office days per week is becoming the accepted “steady state,” solidifying a predictable pattern of space utilization. While some employers continue to advocate for a full five-day return, the broader consensus has settled on the flexibility offered by a hybrid approach. This has sustained a tenant-favorable environment where leverage remains with the lessee. Although asking rents showed a marginal increase of 0.5% year-over-year in the third quarter of 2024, this figure belies the true cost of occupancy. When factoring in persistent inflation and the significant landlord concessions required to close deals, such as generous tenant improvement allowances and periods of free rent, real office rents remained down 19% from their 2020 peak.
This economic reality creates a strategic window for organizations to secure highly attractive lease terms and lock in favorable rates for the long term. The availability of such deals is particularly pronounced for companies willing to consider buildings outside the top-tier, premium segment of the market, where competition for tenants is fiercest. By capitalizing on these conditions, businesses can not only reduce a major operational expense but also position themselves to invest in creating higher-quality, more collaborative workspaces designed for the new era of hybrid work. This proactive approach to real estate strategy allows companies to align their physical footprint with both their financial objectives and their evolving corporate culture, turning a period of market uncertainty into a moment of strategic advantage that supports their long-term operational goals.
