Chapter 3
Office
U.S. Real Estate Market Outlook 2026
5 Minute Read
5 Minute Read
Trends to Watch
- Supply constraints will contribute to declining vacancy:
2025 was the first year that inventory removals (demolitions and conversions) outpaced new completions since CBRE began tracking the market in 1988. The reduction in supply is beginning to rebalance markets. Although 2025 net absorption was 14% below the 30-year average, the steep drop-off in new supply more than compensated to drive the first year-over-year decline in vacancy in over five years. - Demand for prime assets will spill over to the next tier of product as availability dwindles:
As the prime vs. nonprime performance gap is near a record high, occupiers will continue to focus on the highest-quality assets. The urgency to lock in quality space, along with significant tenant leverage for most lesser-quality assets, will further drive this divide. The next tier of assets—those located adjacent to prime buildings with well-positioned amenities (e.g., proximity to public transportation, on-site food & beverage options)—is beginning to see increased demand. Prime buildings in downtown areas registered a 1.5-percentage-point drop in vacancy since year-end 2024 vs. a 0.5-percentage-point decline in prime suburban buildings. Although downtown prime vacancy (14.5%) remained higher than suburban prime vacancy (13.6%) as of Q3 2025, we expect to see stronger downtown leasing activity in 2026. - Urban gateway markets are poised to rebound:
Activity among large urban users is beginning to increase after four years of under-represented market share. Downtown leasing comprised just 30% of activity from 2020 to 2024 despite making up 35% of inventory. In 2025, that share ticked up to 40% of all activity. We may find the market has underestimated the value of agglomeration and talent access offered by urban gateway hubs. We remain optimistic about gateway markets like Manhattan, San Francisco and Dallas, which are positioned to see continued leasing growth in 2026. - Occupiers will remain cautious about AI’s impact on space planning:
Occupiers have signaled a cautious approach to their space planning. Although AI has not yet impacted their real estate decisions, it could happen soon. Occupiers will remain challenged to redefine the traditional workspace paradigm and its ability to attract employees. Growing adoption of AI will only underscore the need for occupiers to deliver purpose-driven offices. Buildings capable of leveraging the latest technologies while also offering tenants best-in-class design and amenities will benefit the most.
Outlook
The office sector should continue to build on the current momentum, though the crawl back to equilibrium will be long. We expect at least the same amount of occupier demand as last year, albeit for less available top-quality space. Coupled with little new construction, this is expected to lower the overall vacancy rate.
As square-foot-per-employee ratios have been stable for over two years, the relationship between employment and absorption is becoming more balanced. The location and magnitude of job growth will in part determine which markets recover first, with the finance and technology industries expected to see better-than-average job growth in 2026.
Annual leasing activity is expected to surpass 2019 levels. In particular, large users will likely continue returning to the market. More certainty about space needs will continue to drive activity, with an outsized share of space commitments in central business districts. Manhattan, San Francisco, Dallas, San Jose and Charlotte will lead for rent growth, while markets like Los Angeles and Seattle return to positive growth in 2026.
As users continue to favor better-quality assets and prime construction activity remains well below average, we expect prime vacancy to reach pre-pandemic levels by the end of 2027. Accordingly, the next tier of assets will begin to see spillover demand amid increased occupier urgency to lock in the highest quality space available.
Figure 5: Office Vacancy Outlook Improves from Last Year
Annual leasing activity is expected to surpass 2019 levels. In particular, large users will likely continue returning to the market.
Contact
Related Services
- Property Type
Office
Use the world’s most comprehensive real estate services platform to find innovative solutions for your needs as a corporate occupier or office investor.
Leverage occupancy data to empower, anticipate and unlock opportunities within your portfolio.
Related Insights
-
Article | Creating Resilience
Business Insights | How Property Management is Building Resilience to Climate Risk
October 14, 2025
With the built environment estimated to account for up to 40% of all greenhouse gas emissions globally, the corporate real estate industry is well positioned to play a lead role in combating climate change.
-
Companies are realigning their tech workforces to pursue AI initiatives, driving job growth and office demand throughout the U.S. and Canada.
Insights in Your Inbox
Stay up to date on relevant trends and the latest research.