Washington, D.C.’s office market recorded its first meaningful occupancy gain in several quarters during the second quarter of 2026, as demand for high-end office space strengthened and the continued removal of outdated buildings helped reduce vacancy, according to new data from CBRE.
D.C. Office Vacancy Falls as Occupancy Turns Positive
The market posted 65,101 square feet of positive net absorption in the second quarter, marking a return to occupancy growth. Overall office vacancy fell 40 basis points to 22.2%.
CBRE attributed the improvement to stronger private-sector leasing and the continued conversion or redevelopment of obsolete office buildings into other uses, particularly residential projects. Washington, D.C. remains one of the country’s most active markets for office-to-residential conversions, steadily shrinking excess office inventory.
New office supply has also slowed sharply. Only three office buildings have been completed since the start of 2023, while the only two projects currently in the pipeline are fully preleased and are not expected to deliver until 2028 and 2031.
Flight to Quality Widens the Divide
Demand continued to favor newer, premium office buildings.
Vacancy in Prime office properties fell 130 basis points during the quarter to 9.3%, while overall Class A vacancy declined to 20.2%. By comparison, Class B vacancy remained much higher at 28.7%—roughly double its level a decade ago—as tenants continued moving away from older buildings.
Prime asking rents also crossed a major milestone, exceeding $100 per square foot for the first time. Overall market rents rose to $59.58 per square foot, while Class B rents remained largely unchanged, reflecting weaker demand for aging office stock.
CBRE noted that rising rents in Prime buildings could increasingly push tenants toward newer non-Prime Class A properties, where pricing remains comparatively lower.
Office Conversions Continue to Tighten Supply
Inventory reduction remained a major factor supporting the market.
Older buildings, particularly in Northwest D.C., continue to be sold for redevelopment into residential and mixed-use projects. User purchases also helped remove vacant space from the market during the quarter, including an embassy’s acquisition of a nearly vacant East End office building that eliminated approximately 180,000 square feet of available office space.
The East End continued to outperform the traditional Central Business District, recording roughly 314,000 square feet of occupancy gains so far this year, while the CBD lost approximately 174,000 square feet. CBRE attributed the difference to the East End’s larger concentration of newer, amenity-rich buildings and a smaller share of aging Class B inventory.
Law Firms Lead Leasing Activity
Leasing remained heavily driven by private-sector tenants, while federal government demand stayed relatively subdued.
Tenants leased about 3.5 million square feet during the first half of 2026, slightly below the historical average. Law firms accounted for one-third of all leasing activity, followed by business and financial services firms and technology companies.
Major transactions included White & Case’s 196,000-square-foot lease at 1701 Pennsylvania Avenue NW, along with renewals by Reed Smith, Booz Allen Hamilton and Reuters. Government leasing totaled only about 200,000 square feet during the year, well below historical levels.
With construction at a 30-year low and nearly all future office developments already preleased, CBRE expects limited new supply to continue supporting high-quality office buildings as tenants compete for the city’s newest space.
