Capital Economics tackled the issue of commercial real estate in its U.S. Office Metros Outlook and found that 2025 will bring further pain for office values across all major metros, but a sharp regional divide is set to emerge from 2026 onward. Southern cities—led by Miami—are poised to remain the clear winners, while many western and northern metros still face a tough road ahead.

Winners: Southern metros take the lead

Miami is set to top the leaderboard in the next phase of the office market cycle. The city is forecast to achieve more than 15% capital growth over the next five years, with projected total returns of 9.5% per year from 2025 through 2029, including an elevated return rate of 12.5% per year for 2026 through 2029. This outperformance is driven by:

• 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 metros.
• 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 capital growth forecast at 11.5% over the five-year span and strong rent prospects supporting its outlook. Capital Economics did note, however, that Houston offices look overvalued according to its analysis.

Broadly, Capital Economics says the winners from the last five years to remain the winners through the back half of the 2020s, a list that also includes Phoenix. The Sunbelt is projected to remain strong, with Dallas, Houston, and Miami projected to see increasing capital values through 2029. The six biggest markets in the U.S., however, are the losers in this projection.

Losers: Western and major northern metros struggle

In contrast, the highest-growing pre-pandemic metros were the losers of the last five years and set to remain so, Capital Economics says. This means most western and major northern metros are expected to face continued declines:

• San Francisco, Chicago, and Los Angeles are singled out for a particularly poor outlook, with further falls 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 forecast to keep rising throughout the next five years.
• Rents are expected to fall in San Francisco and Seattle over 2025 to 2027, whereas Capital Economics sees rents growing “in most markets.”

These western and northern metros are hampered by higher shares of remote work, expensive rents, and weak office-based job growth.

The middle ground: Austin, Dallas, and Atlanta

• Austin has seen office jobs surge by nearly 35% since 2019 according to the latest annual data available, and supply struggling to keep up, even though it has strong completions, at over 3% of inventory in both 2023 and 2024. Austin is one of just three markets, also including Miami and Dallas, where completions are projected at 0.5% or more of inventory from 2025 to 2027, and “even those levels are way down on the recent past.”
• 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 vacancy decline since 2019.

National trends: Vacancy, supply, and demand

• Office completions in 2024 fell to their lowest share of inventory since 2012 and are set to slow further, reflecting high vacancy rates, rising debt and construction costs, and falling office values.
• Vacancy rates remain elevated, with 10 of 17 major metros exceeding 20% at the end of 2024.
• Office-based job growth remains flat, with total jobs up 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 compared to the previous year.
• Office attendance (keycard swipes) is 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 (the net change in occupied office space) 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.
• 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.

For this story, Fortune used generative AI to help with an initial draft. An editor verified the accuracy of the information before publishing.