The real estate analytics firm has upgraded its projections for 2026
The United States office market is showing signs of a faster-than-expected rebound, with new data from CoStar Group revealing the strongest quarterly occupancy gains since 2019.
The real estate analytics firm has upgraded its projections for 2026, now forecasting 10 million square feet of positive absorption over the next year. That's a sharp reversal from its earlier prediction of negative absorption.
“Many occupiers, anticipating higher office attendance, have recently committed to additional space despite tepid hiring,” Phil Mobley, national director of office analytics at CoStar Group, said.
“This behavior is expected to boost absorption for several more quarters.”
Rent growth is also expected to pick up, with CoStar projecting a 1% increase by late 2026 and 1.5% by mid-2027. This marks an improvement from previous forecasts, which had rent growth lingering below 1% through 2027.
However, the sector’s recovery is far from complete. Vacancy rates are projected to remain above 13.5% through 2030, higher than the peak following the Great Recession.
“While the current outlook is positive, there are downside risks,” Mobley said.
“Persistent inflation and volatile trade policy suggest that economic growth is still poised precariously.”
The improved outlook comes amid a complex economic backdrop. According to JLL, U.S. office vacancies declined in the third quarter for the first time since 2019, dropping 5 basis points to 22.5%.
Yet, demand for office space, as measured by VTS’ Office Demand Index, rose 16% year-over-year but slipped 4% from the previous quarter, suggesting momentum may be stalling.
Labor market uncertainty is also weighing on the sector. The US unemployment rate climbed to 4.3% in August, its highest since October 2021, and major employers like Amazon and UPS have announced plans to cut thousands of corporate jobs.
Moreover, a new analysis from the National Foundation for American Policy (NFAP) has projected that the Trump administration’s aggressive immigration policies could shrink the workforce by 15.7 million people by 2035, with far-reaching consequences for economic growth and federal debt.
Despite a push for employees to return to the office—foot traffic is now at about 80% of pre-pandemic levels—structural changes remain.
Per-employee space needs are expected to stay below pre-2020 norms, keeping vacancy rates elevated.
CoStar has flagged potential risks, including weaker-than-reported job growth in knowledge industries and the impact of tech-enabled efficiency on payrolls.
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
