National office shutdowns are accelerating, indicating a pivotal shift in the commercial real estate landscape. By Q3 2025, shutdowns had already reached 90% of the total for the entire year of 2023. This trend underscores a significant bifurcation emerging in the market, driven by factors such as record subleased space and declining asset values. As institutional investors retreat, understanding this two-speed market becomes imperative for stakeholders across the sector.

The escalation of office shutdowns represents a critical stress point in the national market. With 240 million square feet of subleased space recorded in Q3 2025, many landlords are grappling with excess supply. This increase in available office space directly impacts rental rates and occupancy levels, further exacerbating existing vacancy challenges. If this trend continues, we could see a cascading effect on property valuations.

The Value-Weighted Index for office assets has seen a sharp decline of 4.1% from Q2 to Q3 2025. This downward trajectory signals a retreat of institutional capital from core urban assets, as larger investors rationalize their portfolios amid increasing vacancies and reduced liquidity. Conversely, the Equal-Weighted Index, which reflects smaller and more localized assets, fell only 2.3%. This divergence hints at a broader market segmentation affecting financing and investment strategies.

High concentrations of office closures and value declines are evident in major metropolitan areas like San Francisco, Chicago, and New York City. In stark contrast, secondary markets are showing relative stability, albeit with reduced capital inflows. This two-speed market dynamic is shaping lending standards and deal structuring, complicating investment decisions across different asset types and geographies.

Caution among lenders and investors is palpable, as new originations for office assets have decreased by 35% YoY. Local operators are facing increased re-tenanting costs and impaired valuations, which limit exit options. The bifurcation between institutional and private capital markets is widening, with risk premiums reflecting these differences. This segmentation necessitates a reevaluation of risk pricing and capital allocation strategies moving forward.

Looking ahead, if the trend of office shutdowns continues, stakeholders will need to adapt to a rapidly evolving landscape. The divergence in asset performance between top-tier metros and secondary markets will likely persist, influencing lending standards and deal structuring across all market tiers. As institutional capital retrenches, local operators may find themselves better positioned to navigate these turbulent waters, though with caveats regarding refinancing and sales activity.