August 21, 2026
After several difficult years for commercial real estate, the U.S. office market is showing early signs of stabilization. Vacancy rates are beginning to fall, new construction remains limited, and certain types of office properties are performing considerably better than others. The recovery is far from uniform, but the latest data suggests the market may be moving toward a more balanced environment.
The national office vacancy rate fell to 17.7% in July 2026, its lowest level in more than a year, according to Yardi Research data cited by CRE Daily. The rate was down 130 basis points from a year earlier. The improvement is not limited to a handful of markets. Cushman & Wakefield reported that vacancy declined in 49 of the 92 major U.S. markets it tracks during the second quarter, marking the second consecutive quarter of improvement.
Still, the national numbers hide significant differences between markets. Manhattan and Miami recorded some of the country's lowest vacancy rates, while San Francisco remained near the opposite end of the spectrum at roughly 26%. Dallas also showed improvement, with vacancy falling below 20% for the first time since 2023.
One factor supporting the gradual improvement is the lack of new office supply. Only about 29.5 million square feet of office space was under construction nationally in July, with much of that activity concentrated in markets such as Manhattan, Boston, Dallas, and Miami. Developers have become much more selective since the pandemic, while high construction costs and tighter financing conditions have made speculative office development more difficult.
At the same time, some obsolete buildings are being removed from the office inventory through conversions and other redevelopment. During the first quarter of 2026, the amount of office space removed from inventory exceeded new construction by approximately 3 million square feet. That combination of limited new construction and shrinking inventory could gradually help bring supply and demand back into balance.
Perhaps the most significant trend within the sector is the strength of medical office space. According to CommercialCafe data cited by CRE Daily, medical office accounted for 26.2% of new office starts in 2026, compared with just 11% five years earlier. Medical office starts have declined only about 9.5% since 2020, while overall office starts have fallen 73%.
The difference comes down largely to demand. Healthcare is an essential service, meaning medical tenants are generally less affected by remote work than traditional office users. An aging population and continued growth in outpatient healthcare are also supporting demand. The investment performance reflects that resilience. Between 2024 and 2026, about 67% of traded medical office properties appreciated, compared with 52% of comparable general office properties. In markets such as Tampa and Phoenix, the percentage was even higher.
The improving vacancy numbers should not be mistaken for a full recovery. Tenant demand remains concentrated in newer, well-located, highly amenitized buildings. Older and less competitive properties continue to face pressure, particularly in central business districts where hybrid work has permanently reduced demand for some traditional office space.
CRE Daily reports that nearly three-quarters of CBD office assets sold between 2024 and May 2026 traded at a discount, illustrating the continued valuation pressure facing older properties. This is creating a widening gap between the best office properties and commodity buildings. Investors are increasingly focused on properties with strong locations, modern amenities, quality tenants, and realistic opportunities for repositioning.
Disclaimer: This content is intended for informational and educational purposes only and is not intended to be construed as legal, tax, financial, or insurance advice. Every property and tax situation is unique. Please consult a licensed attorney, CPA, or tax professional regarding your specific circumstances before making any decisions related to property improvements, tax assessments, or real estate transactions. Mohammed M. Rahman is a licensed real estate broker in New York. Contact: Mo@ClosedByMo.com.
