U.S. office buildings are filling faster than previously expected, prompting CoStar Group to raise its forecasts for office demand and lower its vacancy projections through 2027. Limited new construction and stronger demand for high-quality properties are supporting the recovery.
CoStar now expects office space absorption to reach approximately 20 million square feet in 2026 and 9 million square feet in 2027, up from its August forecasts of 13 million and 5 million square feet, respectively. The company expects vacancy to end 2026 at approximately 13.6%, slightly below its previous 13.7% projection.
Construction Pipeline Falls 76%
The limited supply of new office space is helping tighten the market. The construction pipeline stood at just 1.5 million square feet at the end of September, down 76% year over year, according to CBRE.
Office absorption remained positive for the 10th consecutive quarter, reaching just under 5 million square feet. Leasing activity totaled 63.8 million square feet in Q3, up 4% from the previous year.
CoStar expects asking rents to increase 2.5% over each of the next few quarters before approaching annual growth of 3%. The revised rent outlook is largely tied to the slowdown in construction rather than a major increase in demand.
High-Quality Offices Continue to Attract Tenants
Demand for higher-quality office properties, including from technology companies, has supported leasing activity as tenants seek more competitive spaces. CBRE also reported that rent growth is accelerating at its fastest pace since 2016.
However, the recovery faces economic risks. Persistent inflation and higher interest rates could lead businesses to cut costs, while productivity gains from artificial intelligence could reduce demand for some knowledge workers.
CoStar considers the risks to its forecast relatively balanced in probability, although the potential downside is greater than the upside.
