U.S. Office Market Rebounding Faster Than Expected, CoStar Finds

A new report by CoStar projects the U.S. office market will outperform earlier forecasts, but it still faces macroeconomic headwinds.

people in office workplace — Photo credit: Pixabay/louisehoffmann83

After the average vacancy at U.S. offices declined in the third quarter for the first time since 2019 — dropping 5 basis points to 22.5%, according to JLL — CoStar has revised its outlook for the market in 2026 from negative to positive.

Previously, the real estate data and analytics firm projected that tenants would vacate 4M SF more than they take up in 2026. CoStar changed its nationwide prediction to 10M SF of positive absorption for next year.

Rent growth is also expected to reach 1% by the end of 2026 and 1.5% by the second half of 2027, a revision from the previous forecast that the metric would likely hover below 1% through 2027.

The forecast was updated following the strongest occupancy gains since before the pandemic, CoStar National Director of Office Analytics Phil Mobley said in a statement.

But the effects of the pandemic are still hanging over office owners. Vacancy is expected to remain above 13.5% through 2030 — a full percentage point above the peak following the Great Recession, according to the report.

“While the current outlook is positive, there are downside risks,” Mobley said. “Persistent inflation and volatile trade policy suggest that economic growth is still poised precariously.”

Despite demand for office space increasing by 16% year-over-year in the third quarter, according to VTS' Office Demand Index, it dropped from the second quarter by 4%, demonstrating stalling momentum.

The slowdown is emerging amid trade tensions, a stalling labor market and the federal government shutdown that started Oct. 1, according to VTS.

The unemployment rate increased to 4.3% in August, according to the Bureau of Labor Statistics, its highest rate since October 2021.

Despite a return-to-office push, which has brought office foot traffic to about 80% of prepandemic levels, companies like Amazon and UPS are now planning to cut tens of thousands of corporate employees, which could be a blow to the recovering market.