The office market is stabilizing on paper, but almost none of that recovery is broad-based. While a handful of elite districts are finally seeing tenants return, vacancies nationwide are still near historic highs, distress is rising, and cities are bracing for revenue hits. The divide between “winners” and “everyone else” is widening fast, according to The Wall Street Journal.
A Recovery Limited to a Handful of Districts
Only a few areas — like Park Avenue in New York and SoMa in San Francisco — are showing real improvement. National vacancy is 14.1%, close to a record, according to CoStar.
Of the 12 largest U.S. markets, five are at 25-year vacancy highs, and the rest are barely below those levels.
This Is a Structural Reset
Remote and hybrid work have permanently reduced demand. Even during 2.7% average economic growth in 2023–24, most landlords couldn’t refill space. With a cooling labor market and layoffs at Amazon, Meta, and Target, conditions could worsen heading into 2026.
More than half of white-collar workers now lack assigned desks — up from one-third pre-pandemic . Companies continue tightening space: Mutual of Omaha is cutting from 1.3M sq. ft. to 800K next year thanks to hybrid schedules and flexible layouts.
Tens of thousands of job cuts tied to AI adoption create another unknown. Even if new roles emerge, no one knows whether they’ll support traditional office demand.
Distress Is Climbing Faster Than Cities Can Respond
CMBS office loan delinquencies hit 11.8%, nearly six times late-2019 levels, Trepp reports. Banks say 5–7% of their office portfolios are stressed, but analysts warn losses may be understated. Retail around empty offices is shrinking too, dragging down nearby valuations.
Cities Are Facing Tax Hits They Can’t Absorb
Commercial values in Washington, D.C. fell from $100.7B to $92.8B for the 2026 tax year. San Francisco expects a $1B deficit by 2027–28, with office values down 50% from peak and tax appeals quadrupling.
Cities like Chicago and Denver may need residential tax increases to offset the commercial decline.
Investors Are Pulling Back or Walking Away
Office sales reached $45.4B through Q3 — higher than last year’s $32B but far below the $102.6B of 2019 (JLL). Owners are abandoning assets: BentallGreenOak handed back a 500K-sq-ft Manhattan tower, and Irvine Co. sold its last downtown San Diego property for $120M, well below what it originally paid.
