By Brandon Glick, Managing Partner, Chicago
Six years after the pandemic emptied downtown towers across the country, the American office market has finally found its footing. Or at least part of it has. The story of office leasing in 2026 is one of bifurcation: fierce competition for the newest and best buildings in a handful of resurgent cities, set against record high overall vacancy and a long tail of aging buildings that may never fill up again.
The recovery is real, but selective
After bottoming out in 2024, leasing activity has been climbing back. Industry data shows leasing grew roughly 7.6% year over year in the first quarter of 2026, and net absorption (the net change in occupied space) has now been positive for three straight quarters. Rolling four quarter net absorption topped 5.2 million square feet in Q1, the strongest reading since the pandemic. Sublease inventory nationally has fallen nearly 14% from a year ago as companies that once dumped space on the market quietly take it back.
The gateway cities written off a few years ago are leading the way. Manhattan leased 10.4 million square feet in the first quarter, roughly 41% above its 2020 to 2024 average, and its availability rate has fallen more than five percentage points from its 2024 peak. Tellingly, renewals made up only about 20% of Manhattan’s leasing activity in early 2026, down from half in 2023. Tenants are making new commitments rather than simply staying put. San Francisco, long the poster child of the office downturn, posted leasing volumes up roughly a third year over year, fueled in large part by artificial intelligence companies that have become a meaningful new source of demand. Together, San Francisco and New York contributed about 3 million square feet of positive absorption in the first quarter alone.
Yet vacancy sits at or near record highs
Here is the paradox: even as leasing improves, the national vacancy picture remains historically bad. How bad depends on whom you ask. Moody’s Analytics put office vacancy at a record 21% in the first quarter of 2026 across the 79 markets it tracks, up from about 17% at the start of the pandemic. Other national trackers measured anywhere from roughly 17.6% to just over 20% as of this spring. The figures differ because each research provider tracks a different set of buildings and markets, but the direction is consistent. Overall vacancy is stabilizing rather than plunging, and it remains far above what was normal before 2020.
The geography of pain is also shifting. Seattle now holds the unwelcome title of highest vacancy among major markets, north of 33% by some counts, surpassing San Francisco. Local business leaders there blame a combination of tech retrenchment and new employer taxes for pushing tenants across Lake Washington to Bellevue or out of the region entirely. Austin, a boomtown that overbuilt during the pandemic years, and Dallas have posted some of the highest vacancy rates in the Sun Belt, while Oakland and parts of Los Angeles continue to bleed occupancy. At the other end of the spectrum, Miami boasts the nation’s lowest vacancy at around 12.5%, the product of years of corporate relocations and financial sector expansion.
The flight to quality has become a scramble for scarcity
The defining dynamic of this cycle is the gap between prime buildings and everything else. Vacancy in prime buildings fell to roughly 12.7% nationally in the first quarter, and in Midtown Manhattan prime vacancy has collapsed to an astonishing 2.9%. The first quarter also saw over 4 million square feet of leases signed at starting rents above $100 per square foot, the highest first quarter volume on record.
Meanwhile, almost nothing new is being built. The national construction pipeline has shrunk to its lowest level since the late 1990s, under 16 million square feet by some measures and down 87% from the 2020 peak. Completions in the first quarter were the lowest in more than three decades of recordkeeping. With prime space dwindling and new supply years away, demand is beginning to spill into the next tier of product: well located, well amenitized buildings adjacent to trophy assets. Landlords of those buildings are gaining pricing power. National asking rents rose 2.2% year over year in Q1, the fastest pace in six years.
For tenants in older, commodity buildings, however, leverage still runs the other way. Renewals are commonly being struck with generous tenant improvement allowances and extended free rent periods, and leases increasingly feature shorter terms, termination options, and flexible space arrangements that reflect hybrid work’s lasting imprint on space planning.
Shrinking footprints, shrinking inventory
Hybrid work has not gone away. Office attendance still ranges roughly from 38% to 66% depending on the market, and the average lease is about 12.5% smaller than before the pandemic, even though surveys suggest roughly seven in ten tenants in the market plan to maintain or grow their footprints. Companies still need offices. They just need less of them, configured differently.
The supply side is adjusting in kind. Total U.S. office inventory has now declined for five consecutive quarters as demolitions and office to residential conversions remove obsolete buildings from the stock. Conversion activity in early 2026 was running roughly 28% above last year’s record pace. This quiet shrinkage of the office universe is one reason vacancy has plateaued rather than continued climbing.
What to watch through the rest of 2026
Industry forecasters expect annual leasing volume to surpass 2019 levels this year for the first time, driven by large occupiers returning to the market and a renewed preference for central business districts, which captured about 40% of leasing in 2025 after years of underperformance. Lower interest rates and a stronger than expected economy are buoying landlord and investor confidence, and single asset office sales hit their highest first quarter level since 2020.
But headwinds persist. Office loan delinquencies continue to climb, topping 11% by some measures, and distressed sales are increasing as owners of functionally obsolete buildings run out of options. Large corporate occupiers are still rightsizing, tech employment remains soft in several West Coast markets, and companies are watching warily to see whether AI ultimately reduces headcount and, with it, demand for desks.
The office market, in short, is no longer in free fall. But it is no longer one market, either. Where you stand in 2026 depends almost entirely on what you own, where it sits, and how new it is. of new supply delivered over the past 18–24 months, particularly in large-scale logistics facilities.
