The national office market continued to show signs of improvement through the first half of 2026, even as white-collar hiring remained subdued. Positive absorption, declining construction activity, and gradually improving workplace attendance are helping reduce vacancy, but performance continues to vary significantly by market and property quality. Here is what the latest data shows and what it means for office investors heading into the second half of the year.
White-Collar Hiring Remains a Headwind
Total U.S. employment increased by 426,000 positions during the first seven months of 2026, but office-using sectors lost approximately 12,000 jobs. If that trend continues through year-end, 2026 would mark the fourth consecutive year of white-collar employment losses, although the decline would be considerably smaller than the roughly 200,000 positions lost annually between 2023 and 2025.
Despite weak hiring, gradual increases in workplace attendance are providing support for office utilization. Hybrid schedules remain common, but employees are spending more time in the workplace, helping businesses maintain demand for dedicated workstations and professionally managed office environments.
Office Demand Continues to Improve
The second quarter marked the ninth consecutive quarter of positive national office net absorption. During the first half of 2026, the market recorded approximately 40.7 million square feet of net absorption—the strongest first-half total since 2019.
Only 10 major U.S. markets, most of them located in the Midwest, experienced net space relinquishment during the first half of the year. This broad improvement indicates that office demand is gradually stabilizing across much of the country, even without a significant rebound in office-sector employment.
Limited Construction Is Helping Vacancy Decline
The office development pipeline has contracted substantially since the pandemic. Only about 9.9 million square feet of space was delivered during the first half of 2026, the lowest first-half completion total since at least 2000.
With tenant demand improving and new construction remaining limited, the national vacancy rate declined to 15.8 percent in June. That figure is 140 basis points below the market’s early-2024 peak, although it remains above the 12.7 percent average recorded between 2015 and 2019. Continued positive absorption, limited deliveries, and the removal or conversion of obsolete inventory should support further vacancy compression.
Market Performance Is Becoming More Divided
The strongest gains in absorption and vacancy reduction over the past four quarters were concentrated in major office hubs, particularly the San Francisco Bay Area, New York City, and Southeast Florida. These markets benefit from concentrations of finance, technology, and business-services employers that value access to large talent pools, business infrastructure, and global connectivity.
Several Sun Belt markets outside Florida, including Atlanta, Phoenix, and major Texas metros, also recorded leasing activity above pre-pandemic norms. However, the average size of those leases remained below levels recorded between 2015 and 2019.
Philadelphia, Washington, D.C., Chicago, and San Diego experienced weaker leasing momentum and more modest vacancy improvements. Their greater exposure to government, health care, life sciences, and other specialized industries has generated less office demand during the current recovery. These differences reinforce the importance of evaluating each market according to its employment base, tenant demand, and long-term competitive advantages.
Property Quality and Location Remain Critical
The recovery is also uneven across property classes. Class A vacancy has declined from its 2023 peak but remains higher than vacancy among Class B and Class C properties. Importantly, much of the available Class A space is becoming concentrated in a smaller group of underperforming buildings.
This suggests that the headline vacancy rate does not tell the full story. Well-located buildings with modern amenities, quality management, and strong tenant experiences may continue to attract demand, while obsolete or poorly positioned properties face greater leasing challenges. For investors, building-level fundamentals are becoming just as important as broader market conditions.
A Selective Recovery Creates Opportunities
The national office market has not fully recovered, but improving absorption, historically low construction, and declining vacancy are creating a more favorable operating environment. Weak white-collar hiring remains a risk, yet greater workplace attendance and limited additions to supply should continue supporting demand.
For investors, the key takeaway is that office performance is increasingly being determined by market selection, location, property quality, and industry composition. Gateway markets such as the San Francisco Bay Area are showing renewed momentum, but opportunities will remain highly property-specific. Investors who focus on strong employment centers and competitive buildings may be well positioned to benefit as the office recovery progresses.
