Will 2026 be the “Year of the Office?” It Depends

Barchart·01/02/2026 00:10:04

The office sector had struggled for years, even before the COVID-19 shutdown. However, since 2024, the sector has been considered at a turning point. According to NAIOP, the 2025 outlook was expected to be one of stabilization and “small steps toward recovery.”

Nor has the situation changed for the 2026 outlook. Experts told Connect CRE that office recovery remains sluggish, but continuous. “My office sector headline would be ‘a notable demand rebound in the third quarter finally halted a three-year decline in national occupancy’,” said Feasibly Founder & CEO Brian Connolly.

However, due to uncertainties about everything from labor to economics, “the market’s ongoing recovery is increasingly likely to be slow, uneven and asset-specific, rather than driven by a broad macro rebound,” said Gordon Lamphere, Van Vissingen and Co. Vice President.

Unpacking 2025

The experts indicated that the following trends were prevalent during the previous 12 months.

Increased Returns to Office

RTO mandates increased as “many corporate occupiers have accepted the new hybrid and flexible working models,” Steve Quick, CEO of ISS North America, commented. This, in turn, helped improve space demand.

Keith Reichert with Newmark noted that office utilization numbers varied by geography. “Daily attendance continues to vary widely, with peak days reaching up to 70%, and some markets approaching 80% in areas with the strongest return-to-office momentum,” said Reichert, who is the company’s Director of Research.

A Reduction in Construction

Yardi Matrix’s Manager of Business Intelligence, Doug Ressler, said that construction deliveries ended up significantly lower in 2025 than the historical norm. “Projects that are either in the planning process or currently under construction represent only 1.7% of stock nationally, down from 3.0% a year ago,” he added.

Reichert agreed, commenting that approximately 25 million square feet was delivered in 2025, “the lowest annual total since 2013.”

Expanding Absorption and Lower Vacancies

Reichert and CBRE U.S. Head of Office Research Stefan Weiss pointed out that 2025 was marked by positive absorption. “Within every market, there were pockets of strength generally tied to prime assets and prime districts,” Weiss said.

While office vacancies remained in double-digit territory, there were indications that the bottom might not be far away. Connolly pointed to a “definite plateau effect,” while Lamphere said that vacancy is no longer on the rise and “we have finally reached somewhat of an equilibrium.”

A Sublet Space Decline

The years following the pandemic saw office space “give-backs” in the form of subleased space. However, “sublease availability declined substantially since mid-2023,” Reichert commented.

The Continual Downsides

Unfortunately, the same issues that have impacted the office sector since 2024 remained problematic in 2025. Bifurcation was the main theme as newer assets performed well. “The challenges existed for Class B or C buildings, as the demand was much less,” Quick said.

Furthermore, demand remained low. “Demand is still historically low and physical occupancy has not increased in any meaningful way,” Ressler said. “Employment growth in office-using sectors has been flat, and concerns about a recession just over the horizon are growing.”

As a result, there is “still a large overhang of vacant space that will take time to absorb or, in some cases, to repurpose,” Weiss commented.

Conversions as a Solution: Yes or No?

The idea of converting vacant office space into alternative uses took off in the immediate aftermath of the pandemic. Most of the experts agreed that office conversion activity gained traction over the past year, with “conversion activity finally shifting from theory to execution,” Connolly noted. Weiss said that 2025 was the first year when conversion/demolition activity outpaced new supply delivery.

Yardi Matrix Director of Data & Research Peter Kolaczynski agreed, stating that multiple large-scale projects were in development over the past 12 months, especially in select core markets. “In the U.S., the office-to-residential conversion pipeline reached a historic high of 70,700 units, up 28% year-over-year, and accounting for about 42% of all adaptive reuse projects,” he added.

However, conversion as a solution to vacant space was, and continues to be, problematic. The experts explained the challenges, including zoning limitations, high conversion costs and financial risks. Additionally, “Many office buildings simply do not convert well due to floor-plate depth, window access or structural layouts,” Van Vissigen’s Lamphere said. “In addition, construction costs and interest rates made returns difficult to justify without incentives.”

Lamphere forecasts that the same conversion constraints will be in place well into the next year. Connolly went further, pointing out that successful conversion projects will be “those that either leverage comprehensive rezonings or target buildings, where the acquisition price has been discounted enough to make a full renovation financially viable.”

Crystal Ball Insights

The experts agreed that office sector predictions will be a mixed bag, based on the following trends.

Continued Distress

Despite the decline in property values and increase in financing challenges, “the feared tsunami of foreclosures largely did not occur,” due to extensions, restructurings and modified loan terms. Lamphere said.

On the other hand, Connolly said that distress reached its most critical point since the Great Financial Crisis. “CMBS delinquency rates for office assets spiked to a record of nearly 12% in late 2025,” he added.

Adding to the problem, Kolaczynski pointed to a looming debt maturity wall that could mean ongoing refinancing strain for office products, which could be problematic in the upcoming year.

“Nearly half of the leases signed before 2020 have yet to hit their expiration and rollover point,” Connolly said. Added Lamphere: “More assets will face maturity pressure, and weaker buildings may still be handed back or sold at discounts.”

Kolaczynski agreed, explaining that in the face of elevated interest rates and hybrid work, “resolution through workouts and asset repurposing will likely continue, but market normalization toward pre-pandemic vacancy levels is unlikely in the near term.”

Recovery, Regional Style

Though the overall U.S. office picture is mixed, the experts were quick to point out that recovery will depend on geography and location. “North American office markets are in different stages of recovery,” Kolaczynski explained. “While New York City is seeing big leases signed, West Coast Markets such as Los Angeles, San Francisco, San Diego, and Seattle have been slow to recover.”

Newmark’s Reichert and CBRE’s Weiss agreed that Manhattan and other coastal markets are experiencing excellent occupancies, with more of the same likely to occur in 2026.

“The recovery that began in prime product and prime corridors has now expanded into the commodity space market,” Weiss pointed out. “Also, in every U.S. market, there are pockets of strong office performance and areas further behind in their recovery.”

Moderate Rent Growth—For Class A

When questioned about rent growth, responses ranged from “stable” to “nominal.” “We expect asking rents to remain fairly stable next year,” Reichert said. However, the story is slightly different with effective rents. “Those will compress somewhat, due to elevated concessions, especially in a selection of gateway and major markets,” Reichert added.

Weiss also made the case for nominal asking rent growth. “Prime product is expected to show stronger rent growth, while the broad average is held down by stronger tenant leverage in the market for more commodity office product,” he said.

Furthermore, the newer Class A trophy assets are likely to see more growth. “Trophy assets can still command record rents, while the broader market will likely see effective rates stay flat,” Connolly with Feasibly observed. Yardi Matrix’s Kolaczynski agreed, adding that tenants of Class A space will be more willing to accept tighter pricing and leasing conditions. “Landlords in top-tier assets will benefit from increased demand and reduced need for concessions,” he added.

Meanwhile, ISS North America’s Quick said he believes that the flight to quality will continue in 2026 as “many corporate occupiers will continue to right-size their portfolios.”

Trends that Impact

Weiss with CBRE explained that, while the office sector may be in positive territory in terms of demand per employee, the labor market will be a factor in 2026.

“Should the U.S. economy maintain a moderate pace of job growth, as is our base case, this demand growth, coupled with shrinking supply, will help rebalance fundamentals closer to long-term trends,” he said.

Other key trends to watch include the increased use of artificial intelligence and a continued shift toward flexible office spaces.

In the area of AI, “the massive influx of venture capital into the sector will cultivate a new class of well-funded, innovative occupiers that prioritize high-density, collaborative, urban environments,” Connolly said.

Meanwhile, “because about two-thirds of firms currently offer location flexibility to their employees, coworking operators are looking at increasing opportunities to fill the gap between fully remote and full-time, in-person office work, while also providing corporate clients an alternative to costly and more rigid office leases,” Yardi Matrix’s Ressler observed.

In addition, occupiers are increasingly demanding hospitality amenities with their office space. Connolly said that office assets providing wellness centers, elevated culinary experiences and club-style rooftop terraces will be the differentiators to support higher occupancies and pricing power. Added Kolaczynski: “Tenants are increasingly demanding hospitality-style amenities—think wellness centers, curated food options, and tech-enabled collaboration spaces. This shift is redefining what ‘premium’ means in office real estate.”

Finally, Weiss said that those in the office space will be more committed to urban cores, as opposed to the pandemic-driven flight to suburban spaces just a few years ago.

“At the same time that we’re seeing the sector find its footing, we’re also seeing renewed conviction on the part of occupiers to make long-term capital commitments to downtown hubs,” he said. “That’s a trend we expect to continue in 2026 and one that will positively impact downtown space fundamentals.”

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