Office vacancy holds near 14% as inventory shrinks

What's happening

The national office vacancy rate slipped to just under 14% in the second quarter of 2026, according to CoStar, about 30 basis points below its mid-2025 peak. Net absorption totaled 17 million square feet over the past year. The more unusual story is supply: demolitions and conversions have pushed total office inventory down by 7 million square feet over 12 months.

With only 50 million square feet under construction, the lowest since 2011, CoStar expects vacancy to hold near 14% through year-end before declining gradually.

• Vacancy: Just under 14%.
• Trailing 12-month absorption: 17 msf.
• Pipeline: 50 msf, lowest since 2011.
• Inventory: Down 7 msf in 12 months.
• Absorption forecast: 13 msf in 2026, 5 msf in 2027.

What it means for owners, tenants and investors

The recovery is uneven. Top-tier buildings are tightening while older properties face conversion, demolition or distress sales, as reflected in office CMBS delinquency near 12%. Tenants still have options in commodity space but fewer in trophy buildings. For Los Angeles owners, obsolete office on industrial-zoned or well-located land may be worth more as a redevelopment site than as office.

Investors are beginning to find opportunities in discounted office assets, but underwriting must include realistic leasing timelines and capital costs. For owners of well-located older buildings, conversion to residential or other uses is increasingly considered, although zoning and construction costs limit how many projects are feasible.

The office market is stabilizing more by losing supply than by gaining demand.

What to watch

CoStar flags AI-driven workplace efficiency as a risk to the modest 2027 demand outlook.

Photo: Kenrick Baksh / Unsplash.