Office Sector Outlook Remains Mixed for 2026

Office recovery in 2026 remains uneven, with gains in Class A assets, rising conversions, and persistent challenges for non-prime space.

January 3, 2026

Nina Dale

Office sector recovery continues at a slow, uneven, and asset-specific pace.
Pockets of demand and absorption support stabilization, but broad vacancies persist.
Conversions and adaptive reuse rising, but most projects face feasibility challenges.
Class A space outperforms, with concessions propping up effective office rents.

Key Takeaways

Slow, Uneven Office Recovery

ConnectCRE reports that the US office sector’s recovery remains modest as 2026 approaches, with asset performance driven by location and property quality. Experts agree that while national declines have stalled, a broad rebound is unlikely in the near term. Hybrid work and economic headwinds continue to influence demand, keeping the recovery sluggish and inconsistent across markets and asset classes.

2025 Trends Shape Office Sector Outlook

Several trends defined the past year for office real estate. Return-to-office mandates increased, supporting space demand, especially in prime geographies with utilization peaking at 70%–80%. Construction deliveries dropped to their lowest rate since 2013, with only around 1.7% of total stock in the pipeline. Positive net absorption was recorded, but vacancies remained elevated. Sublease availability continued to decline. Despite the positive signs, persistent low demand and high vacancies for non-prime assets weighed on the broader office sector.

Conversions and Challenges

Office conversions into other uses, such as residential, accelerated in 2025, with the office-to-residential pipeline reaching 70,700 units—42% of all adaptive reuse projects. However, most conversions face hurdles, including zoning issues, high costs, and structural incompatibilities. Experts expect these headwinds to persist, making successful conversions reliant on discounted acquisitions or targeted rezonings.

Regional Differences and Market Factors

Recovery in the office sector remains regional, with markets like New York outperforming slower-recovering West Coast cities. Nearly half of pre-2020 leases have yet to roll over, fueling expectations for ongoing distress and select asset sales or repositions. Class A and trophy office assets enjoy stronger rent growth, while commodity spaces see flat or declining effective rents due to elevated concessions. This divergence aligns with broader sentiment shifts in commercial real estate, where investor confidence has cautiously improved despite continued market bifurcation. Tenants in top properties are increasingly prioritizing quality, amenities, and flexible work solutions.

What’s Ahead in 2026

The office sector outlook for 2026 hinges on job growth, interest rates, and adaptability to changing occupier needs. AI-driven occupiers, hospitality-style amenities, and a renewed focus on urban cores are expected to shape the office market. While fundamental rebalancing will take time, selective momentum in premium office sector assets and adaptive workspace solutions will drive the next phase of recovery.