For the first time in four years, the U.S. office market is showing early signs of recovery. Average vacancy dipped slightly in the third quarter — down 5 basis points to 22.5%, marking the first quarterly decline since 2019. The improvement, while small, was enough for CoStar to upgrade its 2026 outlook from negative to positive, according to BisNow.
The firm now expects 10 million square feet of positive absorption next year, reversing an earlier projection that tenants would vacate more space than they occupy. It’s a welcome shift for landlords who have spent years grappling with empty floors and hesitant tenants.
Rent Growth Edges Up as Momentum Builds
CoStar’s new forecast also nudges rent growth higher, projecting a 1% increase by the end of 2026 and 1.5% by late 2027 — up from earlier expectations that growth would stay below 1% for several years. Analysts say the adjustment reflects stronger leasing and the most robust occupancy gains since before the pandemic.
Still, the road ahead looks uneven. Even with improvements, office vacancy is expected to remain above 13.5% through 2030, a full percentage point higher than the post-recession peak.
Demand Rebounds, Then Stalls
Data from VTS shows that office demand rose 16% year-over-year in the third quarter, driven by renewed leasing and more return-to-office mandates. But momentum cooled late in the quarter, with a 4% decline compared to Q2, hinting that growth could be slowing again.
Persistent inflation, soft hiring, and ongoing trade tensions are weighing on business confidence. The U.S. unemployment rate climbed to 4.3% in August, its highest since 2021, while October’s government shutdown added fresh uncertainty.
Recovery Faces Corporate Cutbacks
Even as office attendance rebounds to roughly 80% of pre-pandemic levels, large employers are tightening headcount. Amazon, UPS, and other major firms are planning tens of thousands of corporate layoffs — a move that could offset some of the recent leasing gains.
A Fragile but Encouraging Turn
For now, the trend line is bending upward. Modest rent growth, positive absorption, and a long-awaited dip in vacancy suggest the U.S. office market may finally be stabilizing.
But analysts warn that lingering macroeconomic pressures — from inflation to shifting work patterns — could still slow progress.
