For the data behind the commentary, download the full Q1 2026 U.S. Office Report.
Signs of Office Recovery Continue to Grow
In the first quarter of 2026, the U.S. economy continued to navigate a range of uncertainties, including heightened geopolitical tensions late in the quarter that triggered financial market volatility. Despite these headwinds, companies’ need for office space continued to strengthen. Leasing activity is climbing, net absorption is hitting post-pandemic highs, sublease availabilities are dropping, and vacancy has seemingly peaked. The market is also adapting to changing consumer tastes and tenant demands, leading to an increase in renovations, conversions, and demolitions of office space that is no longer competitively viable.
Over the past two years, gradually improving office demand has pushed net absorption onto a firmer trajectory. While net absorption was negative in Q1 (-4.0 msf), the broader trend continues to improve. Four-quarter rolling net absorption—a better measure of underlying demand since it smooths out quarterly volatility—exceeded 5.2 msf, its highest total since the first half of 2020. As has consistently been the case, higher-quality office space is outperforming the broader market. Class A net absorption was +1.4 msf in the most recent quarter, and the four-quarter rolling total was nearly +18.7 msf.
Demand gains are becoming increasingly broad-based. Net absorption was positive in nearly half of U.S. markets in Q1 2026, and Class A absorption posted gains in 47 of the 91 markets tracked by Cushman & Wakefield Research. The growth in the artificial intelligence sector has been a boon to leasing and absorption activity in markets with strong tech ecosystems such as Manhattan (+1.7 msf) and San Francisco (+896,000 square sf). Importantly, demand strength is not confined to technology-driven markets. In Q1, net absorption also exceeded +200,000 sf in markets driven by a variety of sectors, including finance, hospitality, manufacturing, professional services and distribution/logistics—led by Orange County (+865,000 sf), Detroit (+328,000 sf), Las Vegas (+299,000 sf), Phoenix (+280,000 sf), and Dallas (+233,000 sf).
Market Evolving as Vacancy Hits Likely Peak
The declining construction pipeline has been a slow-moving but steady trend dating back to its early-2020 peak of 136 msf. The current pipeline is down 86% from 2020 having decreased by 4.2% QOQ to 18.6 msf. Deliveries totaled just under 3.0 msf in Q1 2026, the third lowest quarterly total in the past 14 years.
At the same time, office inventory has begun to shrink. Low office construction and softer demand over the past five years have led to an increase in demolitions and conversions of less competitive office stock. Overall U.S. office inventory has declined each of the past five quarters, and total inventory is down 0.7% from its Q4 2024 peak of 5.5 billion square feet.
The combination of shrinking inventory and improving demand has put a lid on vacancy increases. In fact, national vacancy has been mostly flat for the past year, rising just 5 bps since Q1 2025. Class A office appears to be past peak vacancy, as available space has declined 4 bps QOQ and 30 bps YOY.
Overall vacancy ended Q1 2026 at 20.2%. Vacancy declined QOQ in half of U.S. markets, led by 100+ bps declines in Des Moines, Austin, Syracuse, and San Francisco. Looking over a longer horizon, 22 U.S. markets recorded vacancy declines exceeding 100 bps over the past year, underscoring the increasingly widespread nature of the improvement.
For the data behind the commentary, download the full Q1 2026 U.S. Office Report.
