CoStar Revises U.S. Office Outlook, Vacancy to Remain Stable Through 2026
CoStar Group, a leading global provider of commercial real estate data, analytics, and online property marketplaces, has released a revised forecast indicating that U.S. office vacancy rates are expected to remain largely unchanged through the end of 2026. The updated outlook suggests a more balanced and moderately optimistic long-term trajectory compared with earlier projections, reflecting improving tenant demand and a stabilizing relationship between workforce size and space usage.
According to CoStar’s latest analysis, the U.S. office sector reached a cyclical high in vacancy during mid-2025. While vacancy edged down slightly toward the end of the year, the broader outlook now points to a prolonged period of stability before a gradual recovery takes shape later in the decade.
Vacancy Expected to Hold at 14.1% in the Near Term
The revised forecast anticipates that national office vacancy will remain steady at approximately 14.1% through the end of 2026. This marks a notable shift from previous expectations, which had projected vacancy continuing to rise until late 2026 before beginning to stabilize.
Under the updated scenario, vacancy is expected to begin a slow but consistent decline after 2026. By 2030, CoStar projects the headline U.S. office vacancy rate will approach 13%, signaling a gradual normalization rather than a rapid rebound.
This outlook reflects a combination of stabilizing demand fundamentals and a slowing pace of new supply entering the market, helping to rebalance conditions in many office markets nationwide.
Improved Long-Term Outlook Compared With Prior Forecasts
Phil Mobley, National Director of Office Analytics at CoStar Group, said the revised forecast takes a more constructive long-term view than earlier projections.
“The revised forecast outlook takes a somewhat more optimistic long-term view than the previous forecast, which called for a continued rise in vacancy until late 2026, remaining well above 13% through the end of the decade,” Mobley explained.
The earlier outlook had reflected concerns that structural changes in office utilization—driven by remote and hybrid work—would continue to suppress demand for years. While those dynamics remain relevant, CoStar now sees signs that the most severe disruptions may be easing.
Tenant Demand Showing Signs of Recovery
One of the key drivers behind the revised outlook is a recovery in tenant demand observed during the second half of 2025. Although hiring growth in traditional knowledge-based industries has remained relatively subdued, occupiers appear to be stabilizing their space requirements.
Mobley noted that demand has been supported by a leveling-off in per-worker space reductions. After several years of downsizing and consolidation, many firms appear to have reached a new equilibrium in how much space they require per employee.
“The shift reflects recovering tenant demand during the back half of 2025, driven by a stabilization in per-worker space needs even as hiring in the traditional knowledge industries continued to lag,” Mobley said.
This stabilization suggests that while companies may not be expanding aggressively, the era of widespread space givebacks may be moderating.
Slower Job Growth Limits Occupancy Gains
Despite improving demand trends, CoStar’s revised “house view” forecast still reflects caution, particularly around employment growth. Compared with earlier expectations, the updated forecast calls for approximately 10 million fewer square feet of net occupancy gains in 2026.
This adjustment reflects continued deceleration in job growth across the U.S. economy, especially in office-using sectors. While economic output has remained resilient, employment expansion has not kept pace, limiting the need for additional office space.
The divergence between economic growth and job growth remains a central factor shaping the office market outlook, influencing both demand and absorption expectations.
Supply Pipeline Remains Manageable
On the supply side, the near-term outlook remains largely unchanged from prior forecasts. CoStar estimates that roughly two-thirds of the remaining office construction pipeline will deliver in 2026, with limited new starts expected beyond projects already underway.
This constrained supply environment is expected to help prevent further upward pressure on vacancy rates. As fewer new buildings enter the market in the coming years, existing inventory will have more opportunity to absorb demand gradually.
Markets with limited construction activity are likely to see stabilization sooner, while those with larger development pipelines may experience more prolonged recovery timelines.
Rent Growth to Stay Muted Until 2027
CoStar’s forecast also points to subdued rent growth across the U.S. office sector in the near term. Effective rent growth is expected to remain below 1% through 2026, reflecting ongoing competition among landlords and elevated vacancy levels.
However, an acceleration in rent growth is anticipated in early 2027, coinciding with a projected pickup in job growth and improving market fundamentals. As vacancy begins to decline and tenant demand strengthens, landlords may regain modest pricing power, particularly for high-quality, well-located assets.
Premium buildings with strong amenities and energy-efficient features are expected to outperform the broader market.
Balanced Risks Shape the Outlook
While the revised forecast is more optimistic than prior versions, CoStar emphasizes that risks to the outlook remain balanced. On the upside, increased office attendance could lead some occupiers to expand footprints, even without significant new hiring.
“Some occupiers may need to expand footprints simply to accommodate workers attending more consistently, even without strong new hiring,” Mobley noted.
On the downside, productivity gains—particularly those driven by advances in artificial intelligence—could continue to decouple economic growth from job creation. If firms are able to increase output with fewer employees, demand for additional office space could remain constrained for longer than expected.
“The recent productivity-driven divergence between economic growth and job growth could persist, especially if advances in AI enable firms to expand output with fewer employees,” Mobley said. “That could dampen demand for additional space.”
Gradual Recovery, Not a Rapid Rebound
Overall, CoStar’s revised forecast paints a picture of a U.S. office market that is stabilizing rather than surging. Vacancy rates are expected to plateau through 2026, followed by a slow and measured decline toward the end of the decade.
While challenges remain, the updated outlook suggests that the sector may be moving past its most turbulent phase. A combination of stabilizing tenant behavior, manageable supply levels, and incremental demand recovery is expected to support gradual improvement in market conditions over time.
The full forecast and additional market insights are available through CoStar Group’s research platforms. For more information about the company and its products and services, visit costargroup.com.
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