Office Vacancy Falls to 17.7% as Prime Markets Lead U.S. Recovery

A recovery that is real, but narrow

The U.S. office market has started to recover, but the gains are going to a small set of buildings and cities. Colliers' third-quarter 2026 data puts national office vacancy at 17.7%. That is 20 basis points lower than the prior quarter, 60 basis points lower than a year earlier, and the lowest reading since late 2023.24 Net absorption, which measures space newly occupied minus space vacated, came to 9.5 million square feet in the quarter. That made nine straight positive quarters, and trailing twelve-month absorption has swung by 78.5 million square feet over two years.24 Available sublease space has fallen for 12 quarters in a row, to 150.9 million square feet.24

The national figures hide the more important point. Colliers describes a market that has split in two: Class A and trophy towers in places like San Francisco, New York, Boston and Seattle are filling up and raising rents, while older commodity buildings still have high vacancy.24 Houston shows the other side of that split. Its vacancy rate of 27.3% is the second highest among major markets.24

I read 2026 as a sorting year rather than a broad rebound. The buildings tenants want are getting scarcer, and the ones they don't want are losing value, failing on their loans or being turned into something other than offices.

The data disagree on levels but agree on direction

The big brokerages measure the market in different ways, and the gaps between their numbers are large. Newmark had vacancy at 19.9% in the second quarter, after four straight quarters of positive demand.22 Cushman & Wakefield's second-quarter number was 20.1%, the eighth quarter in a row that vacancy stayed roughly flat.27 Marcus & Millichap had national vacancy at 15.8% to 15.9% at midyear, down from a 17.2% peak in mid-2024.2529 CBRE put first-quarter vacancy at 18.6%, with prime space much tighter at 12.7%.28

The firms also disagree on how long absorption has been positive. Colliers and Marcus & Millichap count nine quarters. Newmark counts four.242522 Readers should not treat any single vacancy figure as the true one. Every major tracker, though, reports vacancy falling, more markets improving and new construction at historic lows.

The recovery is also spreading geographically. In the first quarter, Cushman & Wakefield found 57 markets with positive absorption over the prior four quarters, compared with 33 in 2024.26 By midyear, vacancy was falling in 49 of the 92 markets it tracks.27 Newmark saw the same pattern, with 48 of its 62 markets posting positive absorption in the second quarter.22 The leaders differ by source. Newmark lists Philadelphia, Nashville, San Francisco and Austin for net demand.22 Marcus & Millichap names the Bay Area, New York and Southeast Florida, and calls Philadelphia, Washington, D.C., Chicago and San Diego laggards.25 The Philadelphia disagreement is notable, and it probably reflects different methods and time periods.

Supply, not jobs, is driving the turn

The recovery has happened without hiring growth in office jobs. Marcus & Millichap reports that office-using employment fell by 12,000 positions in the first seven months of 2026, while total U.S. employment rose by 426,000.25 Newmark described office-using employment as roughly flat year over year.22

The market is tightening because supply is shrinking. Newmark says office construction has dropped to 16.3 million square feet, about 85% below its early-2020 peak.22 Colliers counts only 26.4 million square feet under construction nationwide. It adds that 2026 deliveries are the lowest since the Global Financial Crisis and that more than 70% of markets have received no new space this year.24 CBRE reported first-quarter completions of 1.3 million square feet, the lowest quarterly figure since 1990. It also found that total inventory shrank by 9 million square feet in that quarter alone, as obsolete buildings left the market.28

That contraction was expected. In 2025, CBRE projected that conversions and demolitions would remove more office space than new construction added, which it said had not happened since at least 2000.10 CoStar has since predicted that vacancy will keep falling as developers build less and tear down older buildings.8

The effect on leasing power is direct. Colliers warns tenants that their bargaining window in quality space is closing: Class A tenants have few places to move, and renewals will cost more.24 Owners of commodity buildings, by contrast, still need occupancy and will negotiate hard to keep tenants.24

Data centers are taking over office construction

The clearest sign of change is in construction spending. Census Bureau figures analyzed by FourWeekMBA show data center construction running at an annualized $85.0 billion in August 2026. That is about 63% of the $134.1 billion spent on private office construction, a category that includes data centers. Four years earlier the share was 16%.2 Office construction excluding data centers fell about 30% over the same period.2 Those August figures are preliminary and may be revised.2

A few empty downtown buildings are now becoming data centers. In Chicago, Legacy Investing and GI Partners are converting the former Cboe Global Markets headquarters at 400 S. LaSalle into a 33-megawatt facility. The retrofit is expected to cost $300 million to $400 million, and Legacy projects rents up to four times the downtown office average.1 The price history shows why investors are interested. The building sold for $12 million in 2024. After the owners secured more power from the utility, it resold in late 2025 for $40 million.1 Nearby, a developer has early landmark approval to convert part of 300 West Adams. That building sold for $51 million in 2012 and for just $4 million in 2023.6

These deals are exceptions. A JLL managing director has said typical office buildings provide about one-sixth or less of the power data centers need. Their ceilings are usually too low, and their floors often can't carry the equipment. He estimated that 95% of municipal buildings proposed for this kind of conversion would not work.1 Politics is a factor as well. Chicago's mayor has called for a moratorium on data center construction, and New York has restricted permits for large facilities. Coverage suggests these limits may favor smaller urban conversions that can use existing grid connections.1 My view is that data centers will rescue a handful of unusually suitable buildings, not the commodity office stock as a whole.

The debt problem is still getting worse

The loan picture contradicts the leasing story. Trepp's office delinquency rate on commercial mortgage-backed securities (CMBS) reached a record 12.34% in January. Two very large New York loans drove much of that jump.11 The rate dipped after some loan modifications and then rose again, reaching 12.00% in August. Matured loans that could not pay off made up 81% of newly delinquent balances.1317 CRED iQ measures differently: its August office rate, which counts performing loans that have matured without paying off, was 13.2%. Its special servicing rate, the share of loans handed to specialists for workouts, hit 15.7%, the highest since at least 2019.14 Partial September data showed office delinquency above 14%.19

The main issue is refinancing, not missed monthly payments. CRED iQ attributes 71% of distressed office loan balances to failed or upcoming refinancings.14 About $39 billion of office CMBS matures over the next 12 months. Of that, $13.9 billion is not yet distressed but already shows warning signs, including large loans on 3 Bryant Park and 280 Park Avenue.14 Trepp has suggested office delinquencies could peak in the 12% to 13% range during 2026.11 Recent readings make that forecast look optimistic.

Credit is still available for the best buildings. CBRE reports that loan-to-value ratios on permanent office loans rose to 61.4% in the first quarter, from 58.4% in the prior quarter. That means lenders are willing to finance a larger share of a building's value.28 The same split seen in leasing now applies to lending.

REITs at the top are doing well but still paying more for debt

SL Green, Manhattan's largest office landlord and a real estate investment trust (REIT), shows how strong the top of the market has become. It reported 95.0% leased occupancy in its Manhattan same-store portfolio at the end of September, up from 92.9% at the end of 2025, and reached its year-end target early.39 Rents on replacement leases have run 15.7% above prior rents so far this year, and management says the current pipeline is more than 20% above prior rents.3937 Executives say large tenants are signing renewals three to five years ahead of expiration because so little new supply is coming.37

Rising leasing income has not translated into higher earnings. One review found that SL Green's raised guidance came entirely from a one-time sale. It also noted that the 245 Park Avenue refinancing carries a rate about two percentage points higher than the old loan.35 Management cut about $0.20 per share from second-half guidance because of higher interest expense.37 The stock was down roughly 32% over the past year, and management pointed out that the company trades at about 9 times funds from operations (FFO).3332

The bottom line

The U.S. office recovery is real, but it depends mostly on supply leaving the market rather than demand returning. That favors owners of scarce prime space and puts owners of everything else at risk. For REIT investors and lenders, the national vacancy rate matters less than what happens to each individual building.