Office Vacancy Rate Expected To Stand Still Despite Waning Supply

U.S. office vacancy has been on the decline since reaching record highs last year. But that rate is now expected to stagnate despite active demand and dwindling office stock, according to new data from CoStar.

The updated forecast, released Wednesday, injects uncertainty into the office sector as employers and employees continue to move past the work-from-home era. It signals a more positive outlook than previous CoStar forecasts, which estimated a rise in unused office space through 2026, but it throws cold water on a recovery story that has been building momentum.

The vacancy rate dropped to 14.0% in the first quarter of 2026 from 14.1% in the previous quarter, and CoStar lowered its projection for where vacancy will sit at the end of the year by 10 basis points. But the data firm expects vacancy to stay flat for the rest of the year before resuming a slow descent in 2027 as decreased construction activity and increased demolitions or conversions reduce available office supply.  

Office inventory fell 111M SF, or more than 2%, in the first quarter, according to Avison Young.

Phil Mobley, CoStar Group’s national director of office analytics, told Bisnow in an email that in 2026, there will still be “enough new deliveries to outweigh demolitions,” which he says will likely keep the vacancy rate from changing much until the end of the year.

Data reports have been mixed and sometimes conflicting about the state of the national office market.

Mobley said in a separate post that the forecast reflects a “stronger near-term demand outlook” due to record post-pandemic leasing levels. And VTS’ latest Office Demand Index, released this week, showed tenant need for office space reached its highest level since the pandemic, with space requirements up 13% year-over-year.  

However, Moody’s Analytics said in a report earlier this month that U.S. office vacancy hit a new high of 21% in the first quarter of 2026, as the industry navigates an “increasingly complex set of crosscurrents” such as inflation and a challenged labor market. 

Mobley said in an email that CoStar tracks “a different universe of properties” than what Moody’s covers, including smaller properties, tertiary markets and medical office buildings, which typically have lower vacancy than standard office buildings.