Six years after the pandemic fundamentally disrupted how and where Americans work, the office market has finally accumulated a meaningful stretch of positive news.
Office tenants signed an estimated 115 million square feet of new leases during the second quarter of 2026, according to CoStar, putting activity just below its 2015–2019 quarterly average. Between July 2025 and June 2026, tenants also occupied a net 17 million square feet of additional space, only the second sustained period of positive net absorption since 2020. National vacancy had moved 30 basis points below its mid-2025 peak by the end of that period.
The progress is meaningful. Companies are leasing and occupying more space, vacancy has started to retreat and very little new office space is being built.
But after several years of incremental improvement, the numbers raise a less comfortable question: Should the office market be further along by now?
Why Hasn’t Stronger Leasing Moved the Needle Further?
Part of the answer is the size of the hole the market has been trying to climb out of.
Years of corporate footprint reductions created an enormous supply of vacant and sublease space. Even after companies resumed leasing, new demand first had to replace space that had been given back before it could produce meaningful occupancy gains.
Recent data also suggests the recovery may be losing some momentum. The CREDA Research Foundation reported that net absorption slowed from 9.5 million square feet in the fourth quarter of 2025 to 2.9 million square feet during the first quarter of 2026. CoStar has since lowered its full-year 2026 absorption forecast from 17 million to 13 million square feet and projects only 5 million square feet in 2027.
Hybrid work has also proven more durable than many office owners initially expected. Companies may be calling employees back more frequently, but that has not necessarily meant returning to 2019 space requirements. Employers are also investing in collaboration areas and higher-quality environments intended to encourage attendance while reducing space dedicated to individual workstations. A company can become more committed to the office without occupying more square footage.
A Recovery With a Lower Ceiling?
Office-using employment presents another constraint. Hiring has softened in several industries that traditionally drive office demand. Bureau of Labor Statistics data show that the hiring rate in professional and business services fell to 4.0% in July from 4.7% a year earlier, while the rate in finance and insurance declined to 1.4% from 2.2%.
Artificial intelligence adds another variable. AI companies have emerged as significant office tenants, particularly in technology-oriented markets. Yet the same technology could ultimately reduce headcount requirements across other office-intensive industries, creating the unusual prospect that AI could simultaneously support demand for some buildings while limiting broader office employment growth.
The uneven nature of the recovery raises the possibility that the office market is not simply experiencing a delayed rebound. It may be moving toward a different equilibrium.
CoStar’s second-quarter leasing data provides some evidence of that divide. Leasing volume was above its long-term average in Charlotte, Miami, New York and San Francisco and close to its pre-pandemic average in Dallas and Houston. Yet deal counts were still struggling to recover in nearly half of the 20 largest office markets.
This could leave the country with an office market that is healthier and more active than it was several years ago, but structurally smaller than the one that existed before 2020.
Supply Could Help Finish the Job
There are reasons to believe the balance can continue improving even without a dramatic increase in tenant demand.
The supply side of the equation has changed considerably. During the first quarter of 2026, demolitions and conversions removed 3 million square feet more office space than new construction delivered, according to the CREDA Research Foundation. It was only the second quarter in CoStar’s dataset dating to 2008 in which removals exceeded deliveries.
By August, CoStar reported that U.S. office inventory had declined by 7 million square feet over the previous year as historically low deliveries coincided with increased demolitions.
That changes the math of the recovery. Earlier in the cycle, landlords were trying to fill existing vacancies while newly completed buildings continued adding inventory. Today, relatively little new space is arriving, while some of the least competitive inventory is disappearing.
Return-to-office trends could provide another tailwind. Companies have had several years to settle on workplace strategies, and some employers are increasing attendance requirements. Firms that downsized aggressively during the early years of hybrid work could eventually find themselves short of space as leases roll and employment needs change.
The Next Stage of the Office Recovery
The office market has made meaningful progress. Leasing has recovered close to its pre-pandemic pace, occupancy has grown and vacancy has begun to retreat.
Yet six years after the initial disruption, the pace of improvement remains difficult to ignore. Financial distress is also still working through the system, with office loan performance remaining a challenge even as property fundamentals improve.
The next phase should provide a better indication of whether today’s slower improvement is a temporary plateau or evidence of a lower long-term ceiling for office demand.
Either outcome still creates opportunities. With little new construction and obsolete inventory leaving the market, well-positioned buildings may benefit even if national demand never returns to its old trajectory.
The office market does not need to become what it was in 2019 to produce a durable recovery. But after six years of adjustment, the question is becoming whether the recovery still has another leg of meaningful demand growth ahead of it, or whether reducing excess supply will have to do more of the work.
