U.S. Office Market 2025 Recap and 2026 Outlook
Here’s a recap for office real estate market in 2025 and outlook for 2026
The global office market in 2025 was defined by stress and slow stabilization, and 2026 is shaping up as a transitional year where the sector inches toward a new normal rather than snapping back to pre‑pandemic conditions. Vacancies remained historically high, hybrid work became firmly entrenched, and investors shifted their focus to the best buildings and conversion opportunities while preparing for another year of selective growth and continued repricing.
2025: A year of fragile stabilization
In the U.S., overall office vacancy hovered around the high teens to low 20% range in 2025, far above pre‑pandemic norms and roughly flat to slightly down from peak levels. Markets like San Francisco, Seattle, and Austin saw vacancies above 25%, while tighter markets such as Manhattan and Miami were closer to the low‑teens. However, in Q3, the U.S. office market posted its sixth straight quarter of positive net absorption, with demand once again surpassing available supply. As a result, the national vacancy rate edged down by 20 basis points to 18.8%, marking the first year-over-year decline in vacancy since the early months of 2020.
Office attendance improved but did not return to 2019 levels, with average office visits still around one‑fifth below pre‑pandemic, even after a mid‑2025 uptick in foot traffic. Landlords and investors therefore faced elevated rollover risk and more pressure on rents and concessions, especially in older or commodity buildings.
Leasing, pricing, and construction in 2025
The U.S. office market in 2025 shows a stabilizing but uneven recovery. Leasing activity totaled 203 msf in the first three quarters of 2025 — down 15.4% from the pre-COVID average (2000–2019) of 244 msf, and 11.9% below 2024’s volume of 234 msf. This is driven by high-quality "trophy" buildings, lifestyle markets, and strong demand in specific cities like SF, NYC, and LA. While availability rates are easing and renewals are high, tenants prioritize prime, amenity-rich spaces with flexible terms, as smaller companies (10-20k sq ft) lead much of the activity, with strong interest in green-certified buildings.
New office construction fell sharply, with 2025 pipelines well below the prior decade’s average as developers pulled back and financing tightened. Transaction volumes improved from the trough but remained selective, with capital focusing on prime, well‑located, amenitized buildings and on conversion opportunities (residential, life science, mixed‑use) for obsolete stock.
Hybrid work reshapes demand
By 2025, hybrid work had settled in as the dominant model, with many organizations standardizing on two or three in‑office days per week. At the same time, more employers rolled out some version of an office mandate, which nudged utilization higher but still left large amounts of space underused relative to historic patterns.
These arrangements altered the type of space companies sought: demand shifted toward collaborative, flexible layouts with more meeting rooms, social areas, and technology‑enabled spaces, and fewer dedicated desks. As a result, some firms reduced their overall footprint even while hiring, trading older, larger spaces for smaller, higher‑quality offices in better buildings.
2026: A transition, not a full recovery
Looking ahead, most 2026 outlooks describe a market that remains under pressure but begins to slowly rebalance as new construction collapses and hybrid patterns stabilize. Rather than expecting a full return to 2019 occupancy, forecasts point to a smaller, “right‑sized” level of long‑term demand that supports fewer total square feet but higher quality requirements.
Some analysts predict that U.S. office vacancy could hover near record highs and potentially peak around one‑quarter of all space empty, especially in weaker downtowns. Others see a path to gradual improvement as limited new supply and modest positive net absorption slowly pull vacancy down into the mid‑teens by late 2026 in better‑positioned markets.
Investors, lenders, and pricing in 2026
For investors, 2026 is expected to bring a more active but highly selective transaction environment. Buildings with strong transit access, modern systems, ESG credentials, and rich amenities should attract capital, particularly if prices have corrected 30–50% from peak levels.
Lenders and owners, however, still face a wall of loan maturities against a backdrop of higher interest rates, which will force more restructurings, extensions, or hand‑backs of keys. This refinancing pressure is likely to keep distress elevated but also accelerate the transfer of older, noncompetitive stock into alternative uses.
A trifurcated market beyond 2026
Putting 2025 and the 2026 outlook together, the office sector is clearly splitting into three broad tiers. At the top sit high‑quality, well‑located, amenity‑rich buildings that can attract tenants and capital; in the middle are assets that can still compete if owners invest; and at the bottom is a large pool of aging, commodity space facing prolonged vacancy or eventual conversion.
For tenants, this environment creates leverage to upgrade space and negotiate favorable terms, especially in weaker markets. For owners and investors, 2025–2026 is less about a quick rebound and more about repositioning, pruning supply, and preparing portfolios for an office market that will likely remain smaller, more flexible, and more quality‑driven for years to come.
Want to learn more about investing or leasing in the office real estate market in 2026? Reach out to Commercial Brokers International at info@cbicommercial.com or 310-943-8530.