Office Leasing Pace Nears 2022 Record as Vacancy Falls to 18.2%

A recovery story told in square feet

The U.S. office market has spent most of the post-pandemic period as a cautionary tale. CBRE's third-quarter 2026 numbers suggest it has settled into something steadier. The brokerage says leasing reached 63.8 million square feet in the quarter, net absorption was positive for the 10th straight quarter, and national vacancy fell to 18.2%.11 It was the fifth quarterly decline in a row: vacancy is down 60 basis points from a year earlier and 10 basis points from the second quarter.11 CBRE says annual leasing is on pace to beat the record set in 2022.416

The sharpest gains are at the top of the market. CBRE puts prime office vacancy at 11.9%, down 250 basis points from a year earlier, and says prime vacancy in Midtown Manhattan has dropped to 1.9%.11 Asking rents rose 3.1%, and new construction stayed at record lows.11 CBRE's Weiss described demand as having found stability, and he expects tight supply to keep pushing vacancy down.16 He also said the market has reached a "new normal" in some respects, even if it has not fully moved past the disruption of the pandemic.19

CBRE also cites two other supports for demand: employers are asking staff to spend more time in the office, and the firm does not expect artificial intelligence to cut office demand sharply.8

How much does the headline number hold up?

The direction looks real. How strong it is depends on whose data you use.

Hubble's quarterly report uses Yardi Research data and puts national vacancy at 17.8%. That figure was essentially flat from the second quarter, after five straight declines from a 19.9% peak in early 2025.13 The same report says national asking rents for traditional office space fell 1.5% to $33.18 per square foot, while CBRE reports rents rising.1511 A third compilation covering 92 markets puts national vacancy at 19.8%.18 These gaps come mostly from different methods. Hubble's vacancy figures, for example, leave out owner-occupied buildings.13 Still, the differences matter. CBRE describes a market that keeps tightening. The Yardi-based figures describe one that improved and then stalled.

CBRE's own results add another wrinkle. In its third-quarter earnings report, the firm said its office leasing revenue fell 2% from a year earlier, and CEO Sulentic blamed supply rather than weak demand.35 He said the best REIT-owned buildings in the biggest markets are "running out of space to lease."35 That fits the record-pace leasing story better than it first appears. Tenants still want to sign leases. In the top tier, there is less and less space for them to take.

Our reading is that the national office market has bottomed and is recovering slowly, and that most of the improvement is in the best buildings. Calling it a broad recovery would overstate it.

Very different results city by city

City data shows how uneven the picture is. Manhattan's overall vacancy fell another 60 basis points to 10.2%, the lowest of any major market Hubble tracks, and Brooklyn is close behind at 10.3%.15 Hubble links part of Manhattan's improvement to weaker buildings leaving the inventory, not only to new demand.15 That point matters. Some of the drop in vacancy comes from obsolete space being removed, through conversions or demolition, rather than from new tenants moving in.

San Francisco, long the symbol of the office downturn, is recovering with help from the AI industry. Cushman & Wakefield reports vacancy of 29.3%, down 410 basis points from a year earlier and the lowest since 2023.12 Sublease vacancy is at its lowest level since early 2020, and the city is on pace for its strongest full year of absorption since 2018.12 Top-tier Class A buildings there are asking more than $105 per square foot, with direct vacancy of just 10.3%.12

Other cities are moving the other way. Washington, D.C. had about 519,000 square feet of negative absorption in the third quarter, and vacancy rose to 22.5% as tenants cut back and consolidated space.20 Even there, trophy buildings saw vacancy fall more than 100 basis points to 14.3%.20 Austin's vacancy rose to 24.0%, mostly because a large, almost entirely empty building was completed.17 Chicago, Houston and northern New Jersey also posted higher vacancy last quarter.13 In Los Angeles, Class A vacancy is 20.8%, well above the 7.1% rate for Class C space.14 That reflects the city's own mix of problems: companies leaving California, hybrid work and too much Class B space.14

The pattern is the same everywhere: high-quality space fills up and the middle of the market struggles. In D.C., this flight to quality explains why trophy vacancy can fall while overall vacancy rises.20

REITs are gaining pricing power

Publicly traded office landlords that own the right buildings are benefiting. Piedmont Office Realty Trust reported cash leasing spreads of 26.2%, meaning new leases were signed at rents far above the expiring ones. It was among the highest figures in the company's history.31 Piedmont also reported record net effective rents of $29.31 per square foot and raised its core FFO guidance.38 Management credited the scarcity of quality space, citing historically low construction and conversions of offices to apartments.36 It also said market asking rents are still about 40% below the level needed to justify new construction, which suggests rent growth can continue.36

Piedmont's results also show the limits of the rebound. In-service occupancy fell 120 basis points to 87.7% during the same quarter.31 Strong pricing on new deals is not the same as full buildings.

Other REITs reported similar results. BXP, the largest Class A office owner in the country, signed about 1.2 million square feet of leases in the quarter. CEO Owen Thomas said demand came from AI, finance, legal and business-services firms.33 BXP reports another 1.3 million square feet in its pipeline, and its 343 Madison Avenue development could reach nearly 70% pre-leased.33 Cousins Properties signed 546,000 square feet of leases across its Sun Belt portfolio, posted a 19.8% increase in cash-basis second-generation rents, and raised its 2026 FFO guidance.34

For investors, the picture is fairly clear. REITs with modern, well-located buildings now have pricing power, and the companies are selling weaker assets to pay down or refinance debt. Piedmont refinanced high-coupon notes and cut its average cost of debt to 4.8%.38 BXP sold two Washington office buildings for about $155 million combined.33

Debt is still the weak point

Leasing has improved, but office debt has not. Trepp reports the office CMBS delinquency rate (the share of office loans in commercial mortgage-backed securities that are behind on payments) at 12.2% in September. That is the second-highest reading on record, behind January's 12.3%, and well above the 10.7% peak of the financial crisis.2930 CRED iQ, which counts loans differently, put the rate at 13.2% in August, the highest since at least 2019, with the special servicing rate at 15.7%.24 Special servicing is where troubled loans go to be worked out.

The main source of stress is loans coming due. Trepp found that non-performing matured balloon loans made up 81% of newly delinquent balances in August.23 These are loans that reached maturity without being paid off. CRED iQ counts about $39 billion of office CMBS maturing in the next 12 months. About $13.9 billion of that is not yet distressed but already shows warning signs, such as thin debt coverage or falling occupancy.24 Across all lenders, the Mortgage Bankers Association says office loans still have the highest delinquency rates of any property type, while CMBS delinquency overall rose to 4.97% in the third quarter.28

Earlier this year, Trepp estimated office delinquency would peak in the 12% to 13% range during 2026 and then level off.21 So far, that looks roughly right, but the plateau is very high.

The takeaway

The leasing recovery and the debt problem fit together once you separate buildings by quality. Prime offices in tight markets are filling up, and their owners can raise rents. Older buildings bought or financed at pre-2022 values face loans coming due that their current income cannot cover. A year of near-record leasing will not save the bottom of the market. What it does is push lenders toward a decision on each struggling building: refinance it, sell it at a loss, or convert it to another use.

The office market has found its "new normal." For the best buildings, that means pricing power. For the weakest, it means a slow working-out of bad loans that leasing gains will not fix.