Callahan Capital Partners - Office Real Estate Digest

9/30/2025

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Callahan Capital Partners
September 30, 2025

Callahan Capital Partners is a real estate private equity firm and operator focused exclusively on the origination, acquisition and management of high quality office assets in select urban markets throughout the United States.

Here's a glimpse into what we are reading to shape our view on the evolving office market.

“As we move through the third quarter, JLL is actively seeing the transition from ‘office curious’ to ‘office serious’ take hold across the industry “

Institutional appetite for office assets is picking up, with larger deal demand increasing 130% compared to the same time period in 2024 (per JLL research). Investors are recognizing the lack of new office deliveries, combined with the reduction of overall office inventory in a period of time when employers are calling workers back to the office is creating a supply demand opportunity which is positively affecting office fundamentals, starting with the highest quality of office and trickling down. Read more from CNBC here.

“Trophy rents have soared 26 percent”

Chicago’s office market is split: overall vacancy hit a record 24.3%, but trophy towers are thriving. Availability in top-tier buildings is just 11.4%, with high floors (above 25) at 8.4%. While average downtown rents have barely moved since 2020, trophy towers have jumped ~26%, reaching $80–$90 per square foot. Tenants are competing for prime space, and developers are testing new projects… but these projects require pre-leases above $100 per foot. Older, outdated offices face obsolescence or conversion. The result is a bifurcated market where trophy assets soar with limited threat from new supply while older commodity buildings struggle. Read more here on The Real Deal.

“Instead of the steady negative absorption that defined the last three years, new commitments are starting to outpace givebacks.”

San Francisco’s office market is showing signs of recovery. Leasing surpassed 5M sq. ft. in early 2025, with Q2 activity at 2.7M sq. ft.—the strongest since 2019 and over 60% higher year-over-year. AI firms are driving much of the demand, pushing leasing up 40% from 2024. While still off pre pandemic health (vacancies remain elevated above 22%, with some submarkets near 30%), it’s clear momentum has shifted and the market is stabilizing. New commitments are outpacing givebacks and landlords of top properties have leverage, positioning San Francisco for its strongest absorption in five years. Read more here on Propmodo.

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