US Office Vacancy to Dip Post-2026 as Supply Shrinks, Demand for Quality Rises

The U.S. office market is gearing up for a slow but steady decline in its vacancy rates starting in 2027, after holding mostly stable through the rest of 2026. This is according to a fresh forecast from CoStar, a leading real estate data provider, which notes that national office vacancy eased to just under 14% in the second quarter of 2026, a 30-basis-point drop from its mid-2025 high point. This small shift marks a crucial turn, being only the second time since 2020 that we've seen a consistent increase in occupied office space, signaling a cautious but clear recovery for the sector. The improved outlook comes as a shrinking supply of office buildings meets a growing, albeit selective, demand. Over the past year, the U.S. lost about seven million square feet of office space, mainly due to very few new buildings being constructed and many older ones being torn down or converted for other uses. While the total amount of new office space being planned is at a 15-year low, companies are showing a strong preference for 'Class A+' buildings in prime locations, a trend known as the 'flight to quality.' This means that while some areas are seeing strong leasing activity, older or less desirable offices continue to face challenges. Looking ahead, the market faces a balancing act. CoStar has actually lowered its expectations for how much new office space will be taken up in 2026 and 2027, pointing to potential risks like the impact of Artificial Intelligence on how much space companies truly need and slower job growth. However, the ongoing trend of companies bringing employees back to the office, even if not full-time, is expected to continue supporting demand for quality spaces, especially in busy city centers. The spotlight will remain on how quickly older, less-desirable buildings can find new purposes, and whether the 'flight to quality' will eventually help the wider market beyond just the best properties.