Is Your City Winning or Losing the Return-to-Office Race?

Winners: Southern Metros Take the Lead

As more people return to offices after the remote work norms of the pandemic, the U.S. office market is showing clear signs of regional division. According to a report by Capital Economics, 2025 will bring continued challenges for office values across major cities, but from 2026 onward, a sharp regional divide is expected to emerge. Southern cities are poised to be the winners, while many western and northern metros face a difficult path ahead.

Miami is set to lead in the next phase of the office market cycle. The city is projected to achieve over 15% capital growth over the next five years, with an average annual return of 9.5% from 2025 through 2029. This includes a higher rate of 12.5% per year between 2026 and 2029. Several factors contribute to Miami’s strong performance:

• Strong rent growth: Miami is expected to see annual rent increases of 3%–3.5% through 2027, and above 3.5% over the full five-year period.
• Robust absorption: The city continues to attract new tenants, benefiting from higher office utilization rates and faster office employment growth than most other cities.
• Falling vacancy: Miami, along with Houston, is one of the few markets expected to see a decline in vacancy rates between 2025 and 2027.

Houston is another Southern winner, with a forecasted capital growth of 11.5% over the five-year span. However, Capital Economics notes that Houston’s office market appears overvalued based on its analysis. Other Southern cities like Phoenix are also expected to remain strong, as part of the broader Sunbelt region that is projected to maintain increasing capital values through 2029.

Losers: Western and Major Northern Metros Struggle

In contrast, the highest-growing pre-pandemic cities have become the losers in the current office market cycle. This means that most western and major northern metros are expected to face continued declines in office values. Cities like San Francisco, Chicago, and Los Angeles are singled out for particularly poor outlooks, with further drops in office values and persistently high vacancy rates.

San Francisco’s vacancy rate has surged by nearly 14 percentage points since late 2019 and is expected to continue rising over the next five years. Rents are also expected to fall in San Francisco and Seattle during 2025 to 2027, while most other markets see rent growth. These cities are hindered by higher shares of remote work, expensive rents, and weak office-based job growth.

The Middle Ground: Austin, Dallas, and Atlanta

Austin has seen a surge in office jobs, with a nearly 35% increase since 2019. Although supply has struggled to keep up, the city has maintained strong completions, with over 3% of inventory added in both 2023 and 2024. Austin is one of just three markets—along with Miami and Dallas—where completions are projected to reach 0.5% or more of inventory from 2025 to 2027.

Dallas is forecast to see only a slight increase in vacancy, with strong rent growth prospects. Atlanta is the only metro besides Miami to have seen a decline in vacancy since 2019.

National Trends: Vacancy, Supply, and Demand

Office completions in 2024 fell to their lowest share of inventory since 2012 and are expected to slow further. This reflects high vacancy rates, rising debt and construction costs, and falling office values. At the end of 2024, 10 of 17 major metros had vacancy rates exceeding 20%. Office-based job growth remains flat, with total jobs up just 1.2% year over year, but office jobs unchanged for the first half of 2025.

The information sector, including tech, is a major drag, with job cuts up 27% in the first half of 2025 compared to the previous year. Office attendance, measured by keycard swipes, remains steady at just over 50% nationally, but Southern cities show much higher utilization than their Western counterparts.

Key Takeaways

1. Office Values: More Pain Before the Gain
   All metros are expected to see further declines in office values through 2025. Recovery is projected from 2026, led by Southern markets. Miami is forecast to achieve over 15% capital growth over the next five years, with Houston following at 11.5%. Phoenix stands out as an outlier, benefiting from a high income return component, but Miami remains the top performer with projected total returns of 9.5% per annum (2025–2029), rising to 12.5% per annum (2026–2029).

2. Demand: Southern Strength, Western Weakness
   The overall labor market has been resilient, but office-based job growth remains flat (0.0% in 1H25 vs. 1H24). Information sector jobs—including tech—are down 0.6%, with tech sector job cuts up 27% year over year, driven by visa uncertainty and AI advancements. Southern metros have led in office-based job growth since the pandemic. For example, Austin’s office jobs are up nearly 35% compared to 2019. Office attendance (keycard swipes) is steady at just over 50% nationally, but Southern cities show much higher utilization than western metros. Absorption turned negative again in 1Q25, with western and major markets expected to see further declines, while Miami continues to attract new tenants.

3. Supply, Vacancy, and Rents: Tale of Two Regions
   National office completions in 2024 hit their lowest level as a share of inventory since 2012 and are set to slow further. Austin led completions in 2023–24, but new supply is expected to drop across all 17 tracked markets. Vacancy rates remain elevated: 10 of 17 metros had rates above 20% at the end of 2024. Only Atlanta and Miami have seen vacancy decline since late 2019; San Francisco’s vacancy rate has jumped nearly 14 percentage points. Vacancy is expected to keep rising in most markets, especially San Francisco, but Houston and Miami should see declines in 2025–27. Rents are forecast to grow in most markets over the next three years, except for San Francisco and Seattle, where net declines are expected. Miami stands out with 3%–3.5% annual rent growth forecast for 2025–27, and above 3.5% for the full five-year period.

Outlook: A Divided Recovery

The U.S. office market is continuing its half-decade of sharp regional divergence. Southern metros—especially Miami, Houston, and Phoenix—are set to benefit from stronger job growth, higher office utilization, and robust rent increases. In contrast, western and major northern cities are likely to continue to struggle with persistent vacancies, weak demand, and falling values.

For investors, developers, and tenants, the message is clear: The forthcoming shakeout from America’s return to office will create distinct winners and losers, with the South leading the way into recovery.