Moody's: Office Vacancy Hits 21% In Q1, Another Record High

U.S. office vacancy hit a new high as commercial real estate’s subdued 2025 performance carried into the first quarter of 2026, according to a report from Moody’s Analytics.

Two markets in Texas and California led the increase in vacancy rates, with nearly 1M SF of office occupancy losses each.

The industry is navigating an “increasingly complex set of crosscurrents,” including renewed inflationary pressure, resilient high-income consumer spending and restrained office leasing demand that will likely keep CRE performance uneven in the near term, per Moody’s Analytics CRE Preliminary Trend Analysis for Q1 2026. 

The 21% office vacancy rate is up 10 basis points from the previous quarter and up 60 bps from the previous year. The new vacancy rate is 4% higher than the 17% vacancy rate recorded in 2020 at the start of the pandemic. 

Oakland-East Bay, California, led the U.S. in negative absorption with 944K SF of occupancy lost, according to the report. That was followed by Austin with 870K SF of negative absorption, then Chicago with 571K SF lost and San Jose, California, with 540K SF lost. 

Occupied office stock expanded during 2021 and 2022 as firms worked through pre-pandemic leases, but now 10 of the last 13 quarters have shown net contraction. The overall decline was 5.2M SF in the first quarter, bringing the decline since 2025’s first quarter to nearly 20M SF, the report states.

The trend reflects structural and cyclical forces, including the demand for higher-quality space and smaller footprints. Moody’s expects vacancy to continue rising this year as more leases expire.

Across all asset classes, Moody’s reports broadly stable performance. Multifamily rent growth remained modest, increasing less than 1%, amid a 10-bps increase in vacancy to 6.8%. Markets with the most aggressive construction pipelines, particularly Sun Belt markets like Dallas, Phoenix, Charlotte and San Antonio, saw increased vacancy rates. 

Rental “delivered mild upside surprises” with a flat vacancy rate of 10.4%. Strong consumer spending is helping but keeping the sector steady rather than spurring growth as labor markets soften and cost-of-living pressures increase.  

Industrial rents flattened as vacancy ticked up 10 bps to 8.4%, its highest level since 2021, as inventory growth narrowly outpaced occupancy gains. Industrial net absorption totaled 1.3M SF during the quarter.