The office construction pipeline continues to rapidly descend to record lows even as interest rates improve, as institutional investors still opt for other asset classes, according to a January 2026 JLL report, U.S. Office Market Dynamics, Q4 2025.

Inventory currently under construction is now more than 20% lower than previous historic lows measured in 2011, and groundbreakings marginally declined from record lows in 2024. Just 7.4 million square feet of projects broke ground last year, declining from the record low of 7.6 million square feet in 2024. 

The office market construction pipeline reached record lows in the past year due to a combination of several factors, the most significant being cost of capital due to interest rate hikes, according to Jacob Rowden, JLL’s senior manager of U.S. office research. While there was a significant volume of groundbreakings in 2020 and 2021, an acute slowdown began as rate hikes began in late 2022.

“The combination of sharp increases in debt service cost and sharp declines to asset valuations made return-on-investment for new construction untenable compared to where they were in years past,” Rowden said.

That’s exacerbated by the fact that institutional investors, which comprise the largest owners of commercial real estate nationally, are favoring other asset classes like residential, industrial and alternatives, he said.

“So even as the rate environment improves, office is last in line, so to speak, for a number of these groups to begin considering development or acquisitions,” Rowden said.

The net negative inventory environment expected to persist beyond 2026, according to the report. Deliveries last year fell 17% to under 25 million square feet, while almost 40 million square feet of office space was removed from inventory for conversions or redevelopments. Overall inventory declined by 0.3%, the second consecutive year that U.S. office inventory has fallen.

The record low office construction pipeline makes it exceptionally more difficult for trophy office tenants—the top end of the market—who were considering relocation or need to expand, Rowden said. A tenant that might have had 10 different buildings to consider for an upgrade or expansion several years ago now might see one or two viable options in their market.

“There is a certain echelon of tenants in some of the high-cost gateway markets that is essentially rent agnostic, and willing to pay record rates to secure trophy space—in fact, that drove several of the largest groundbreakings in 2025,” he said. “However, the pace of that development and the overall scale of those projects don’t meaningfully address the 30 to 40 million square feet of product being removed for conversions and redevelopments each year.”

Indeed, the most acute pressure in the office market over the short term will be an unprecedented lack of new development and net inventory reductions because of surging conversion and redevelopment activity, according to the report. Just 19 million square feet of office product is currently under development, the lowest total in over 30 years of recorded data.

A persistent delay in new development, and a commensurate lack of renovation activity on existing assets, risks undermining the top-of-market activities, leading to less overall leasing volume and a greater share of renewals, Rowden said.

“If supply constraints continue to intensify through the end of the decade, and if conversion and redevelopment activity leads to Class B and Class C segments similarly seeing that rapid compression of availability, there are risks that companies will turn to more flexible strategies to address space constraints in their portfolio, which could mean the re-adoption and proliferation of hybrid policies, desk sharing and remote work,” he said.