2026 Office Outlook

As Office Vacancy Begins to Broadly Decline,
Investment Strategies Remain Specialized

Momentum building in the office sector. While the pandemic heavily affected the performance of office properties, signs of improvement are becoming clearer.

• More than 127 million square feet of office space has been absorbed on net over the past six quarters.
• The nationwide vacancy rate has dropped from an early 2024 peak of 17.2 percent to 16.4 percent as of the third quarter.
• Demand has been unevenly distributed, however, with tenants generally favoring newer, smaller, suburban offices.
• Markets with the lowest vacancy rates include Riverside-San Bernardino, Charleston, Cleveland, and Tampa, as well as a variety of smaller tertiary metros, such as Knoxville.
• Yet demand is also strong for top-tier, high-amenity Class A buildings in select major markets, including New York City, Atlanta, Miami-Dade, and Dallas.

Employees gathering in offices on a consistently higher basis. Workers have slowly but steadily returned to offices since the pandemic ended, with hybrid schedules dominant.

•  Office utilization fell by more than 90 percent during the pandemic compared to a 2019 baseline.
• By early 2023, however, utilization had returned to about 50 percent. As of October 2025, utilization was about 70 percent.
• This trend is expected to continue in 2026, especially as the labor market appears to be softening.
• Worker shortages have restrained return-to-office efforts.
• If unemployment nudges higher in 2026, employees may return to the office more frequently, boosting demand for office space..
• Offices in New York and Miami are closest to full use, while cities such as Denver and Boston have been slower to return to full utilization. Momentum is building, however. While San Francisco has the highest vacancy rate nationally, it also saw one of the strongest year-over-year improvements in office attendance

Amid tailwinds, nuances remain driving factor. The near-term outlook for the office sector is positive, with vacancy continuing to ease. But the investment climate remains complex.

• Office construction is expected to reach a 25-year low in 2026, which, combined with small gains in space demand, will drop the U.S. vacancy rate to 15.9 percent by year's end.
• Even so, investment activity has remained well under the pre-pandemic norm. Still, elevated cap rates and unique investment opportunities have attracted a range of investors.
• Owner users, who historically make up 5 percent to 8 percent of the buyer pool, now account for about 13 percent of acquisition activity
• Private investors, who historically comprise about 30 percent of buyers, now make up closer to 50 percent of acquisitions
• The average cap rate helped investors pursue opportunities, rising 90 basis points since 2022 to an average of 7.6 percent last year. However, that metric does not include sales of vacant buildings and understates the variety in today's market.
• Offices are trading across an enormous range of sale prices and cap rates. In some cases, additional financial resources are required to maximize a property's potential. 

* Estimate ** Forecast
Sources: Marcus & Millichap Research Services; CoStar Group, Inc.; Placer.ai; Real Capital
Analytics; U.S. Census Bureau; U.S. Bureau of Labor Statistics