By Matthew Auchincloss
The U.S. office sector may never be going back to pre-pandemic utilization levels, but enough time has elapsed and data compiled to make the case that the asset class is stabilizing.
According to data from CoStar Group, leasing activity remained steady in the second quarter of 2026, with 115 million square feet of new leases signed (renewals were not included in the data). That remains approximately 9 percent below the quarterly average from 2015 through 2019 but is far above the leasing volume from 2020 and 2021.
The national vacancy rate is down 50 basis points from one year ago and 20 basis points in the past quarter, currently sitting at around 18 percent, according to CoStar.
Rental rates are also up, averaging approximately $38.06 per square foot nationally — a 2.3 percent increase from last year, according to Colliers. Class A rates currently sit around $43.76 per square foot, with a sharp divide between commercial business district (CBD) rates and suburban product. CBD rates dropped 10 basis points from the first quarter, but the $52.52 per square foot price tag is still up slightly year-over year (70 basis points). Suburban rates are much lower at approximately $37.74 per square foot, up 50 basis points from the first quarter and up 400 basis points year-over-year. Manhattan has the highest CBD rate at $85.71 per square foot.
Smaller users are exhibiting more demand for space than they were two years ago, as evidenced by upticks in leasing activity in that segment of the market. However, construction starts for new office product are still declining, and data suggests that supply-demand imbalances in some markets will still need additional time to self-correct.
The pandemic and subsequent rise of working from home (WFH) reset the U.S office market, causing rental and occupancy rates to plummet and building values to erode. The U.S. office market hasn’t returned to its pre-pandemic peak.
In the past two years, however, the market has rebounded and found stabilization. Data from Cushman & Wakefield suggests that companies are not dramatically increasing their WFH policies and that office attendance has leveled off between 60 and 75 percent of pre-pandemic levels.
Armed with the knowledge that office space is still necessary to some degree, companies are venturing back into the marketplace with a clear focus on leasing amenity-rich spaces in vibrant neighborhoods that can entice people back into buildings.
The “flight to quality” trend of Class A office buildings broadly seeing much higher leasing volumes than their Class B counterparts has become further entrenched as the post-pandemic era has unfolded. Net absorption of Class A office space totaled 4.4 million square feet in the second quarter, bringing the four-quarter rolling total to 24.5 million square feet — nearly back to pre-pandemic levels, according to data from Cushman & Wakefield.
According to data from Colliers, Portland has the highest Class A office vacancy rate in the country at 33 percent, with Seattle just behind it at 31.3 percent and Los Angeles in third at 28.3 percent.
The national Class B vacancy rate was unchanged from the first quarter, staying steady at 17 percent. Some markets report higher vacancy in Class A buildings versus Class B, which could be attributed to the implosion of rental rates in the latter segment of the market.
According to data from Colliers, in the second quarter, net absorption was positive for the eighth consecutive quarter as 16.9 million square feet of office space was snapped up. Manhattan accounted for 3.5 million of that absorption and leads all markets in that metric with 5.5 million square feet absorbed year-to-date. San Francisco, meanwhile, has absorbed 2.1 million square feet through the first two quarters, which CoStar attributes to a surge of AI firms seeking large footprints. Across the country, “almost three-quarters of all markets have positive absorption for the year,” the Colliers research team wrote in its report.
The increase in leasing activity is unlikely to correspond with an increase in new office deliveries, though. New construction has hit a 14-year-low, with just 15.6 million square feet completed over the past four quarters, according to data from Colliers. Just 14 markets saw any new deliveries in the second quarter. There is less than 22.8 million square feet of new construction in the U.S. development pipeline, and only five markets have more than one million square feet of ground-up construction, according to data from Cushman & Wakefield.
This state of affairs partly explains why there are “few contiguous blocks of premium space” available in the biggest markets, per CoStar — which is, in turn, keeping the square footage of the new leases relatively small.
Part of the reason for the smaller average footprints is also that smaller firms that require less office space currently comprise much of the new leasing volume. With such limited large spaces available, larger companies are less able to move locations, and smaller companies have filled the available space. A few markets have broken through that, primarily “finance-heavy locations [like] Charlotte, Miami and New York,” per CoStar. Dallas and Houston “have also seen overall leasing volume remain close to their pre-pandemic averages.”
CoStar warns, however, that the inability of large occupiers to shift locations may stagnate the market as it prevents smaller firms from backfilling the space. Slow job growth in office-dependent industries also indicates that “office leasing volume is likely to decelerate in the quarters ahead.”