Key Takeaways
- • U.S. office vacancy rate fell to 14% in Q1 2026, declining 20 basis points from its mid-2025 cyclical peak and stabilizing through year-end 2026 before beginning a gradual descent.
- • CoStar's revised forecast projects office vacancy to end 2026 approximately 10 basis points lower than previously anticipated, with convergence to earlier expectations by mid-2028, driven by stronger-than-expected leasing momentum.
- • New leasing activity in Q1 2026 reached its highest level since 2018, generating approximately 10 million additional square feet of net absorption in 2026—a demand acceleration attributed to tightening availability of desirable space.
- • Rent growth is expected to remain above 1% through 2026 and accelerate thereafter, supported by historically low construction levels and elevated demolition activity that will contract overall office supply.
- • Downside risks to the outlook predominate, according to Phil Mobley, national director of office analytics at CoStar Group.
Summary
CoStar Group released a revised forecast on April 29, 2026, indicating that U.S. office vacancy will remain stable through the remainder of 2026 before entering a prolonged, gradual decline. The office vacancy rate declined to 14% in the first quarter of 2026, marking a 20-basis-point improvement from its mid-2025 cyclical peak. This retreat reflects a stronger near-term demand environment than previously modeled.
The updated outlook incorporates significantly revised expectations for leasing activity. New leasing in Q1 2026 reached its highest quarterly level since 2018, indicating robust tenant demand despite persistent macroeconomic uncertainties. CoStar now projects approximately 10 million additional square feet of net absorption for full-year 2026—a material upward revision from the prior forecast. Phil Mobley, national director of office analytics at CoStar, attributed this acceleration to a "pulling forward of demand driven by the tightening availability of desirable space," suggesting that competitive conditions for premium properties are intensifying.
Under the revised forecast, office vacancy is expected to end 2026 roughly 10 basis points lower than previously anticipated, then converge with earlier expectations by mid-2028. The longer-term trajectory anticipates a sustained decline in vacancy rates beginning in 2027, driven by structural supply constraints. CoStar's analysis notes that historically low construction levels combined with elevated demolition activity will produce a net contraction in office supply, supporting rental rate appreciation.
Rent growth is projected to remain above 1% annually through 2026 and to accelerate materially in subsequent years as supply tightening intensifies. However, Mobley cautioned that "risks to the outlook appear skewed to the downside," signaling potential headwinds that could challenge the stabilization narrative, though specific risk factors were not detailed in the forecast release.
The updated outlook incorporates significantly revised expectations for leasing activity. New leasing in Q1 2026 reached its highest quarterly level since 2018, indicating robust tenant demand despite persistent macroeconomic uncertainties. CoStar now projects approximately 10 million additional square feet of net absorption for full-year 2026—a material upward revision from the prior forecast. Phil Mobley, national director of office analytics at CoStar, attributed this acceleration to a "pulling forward of demand driven by the tightening availability of desirable space," suggesting that competitive conditions for premium properties are intensifying.
Under the revised forecast, office vacancy is expected to end 2026 roughly 10 basis points lower than previously anticipated, then converge with earlier expectations by mid-2028. The longer-term trajectory anticipates a sustained decline in vacancy rates beginning in 2027, driven by structural supply constraints. CoStar's analysis notes that historically low construction levels combined with elevated demolition activity will produce a net contraction in office supply, supporting rental rate appreciation.
Rent growth is projected to remain above 1% annually through 2026 and to accelerate materially in subsequent years as supply tightening intensifies. However, Mobley cautioned that "risks to the outlook appear skewed to the downside," signaling potential headwinds that could challenge the stabilization narrative, though specific risk factors were not detailed in the forecast release.
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