The Office Market Just Had Its Best and Worst Quarter at the Same Time

Leasing is surging to post-pandemic highs while vacancy just hit a record — and both things are true at the same time.

Jordan B. & Nina Dale
April 07, 2026

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Good morning. The office market just posted its best leasing quarter since before the pandemic and its highest vacancy rate on record — in the same breath — and today we break down what that contradiction actually means for CRE investors.

Today’s issue is sponsored by ICSC — join forward-thinking leaders at ICSC Las Vegas (May 18–20) to discover the technology transforming the CRE industry.

Why has grocery-anchored retail outlasted every "retail is dead" headline? This week on the No Cap Podcast, we're sitting down with Ross Cooper — President & CIO of Kimco Realty (NYSE: KIM) — to talk about one of the most resilient asset classes in commercial real estate: grocery-anchored open-air retail.

CRE Trivia 🧠

What was the first U.S. city to implement a congestion pricing program for vehicles entering its central business district?

(Answer at the bottom of the newsletter)

Market Snapshot

S&P 500

GSPC

6,611.83

Pct Chg:
+0.11%

FTSE NAREIT

FNER

788.60

Pct Chg:
+1.28%

10Y Treasury

TNX

4.333%

Pct Chg:
-0.023

SOFR

30-DAY AVERAGE

3.65%

Pct Chg:
-0.00

*Data as of 4/5/2026 market close.

Refinancing Wall

The Office Market Is Sending Two Very Different Signals at Once

Leasing is surging to post-pandemic highs while vacancy just hit a record — and both things are true at the same time.

The vacancy headline is ugly: U.S. office vacancy climbed to 21% in Q1 2026, according to Moody's Analytics — a new record, up 60 basis points year-over-year and a full 4 points above where it stood at the start of the pandemic. Over the last 13 quarters, 10 have posted net contraction in occupied office stock, with Q1 alone shedding 5.2M SF nationwide. Oakland-East Bay led the losses with 944K SF of negative absorption.

But leasing just had its best quarter: According to CoStar Analytics, tenants signed new leases on an estimated 120M SF of office space in Q1 — a 25% jump over Q1 2025 and the first time this decade that quarterly leasing volume has cleared its pre-pandemic average. It's also the highest single quarter since mid-2018.

Between the headlines: The record leasing total was driven by an unusually high number of smaller transactions reports CoStar, not a return of blockbuster deals. Average new lease sizes remain roughly 15% below pre-pandemic norms, a pattern that has held since early 2023. Tenants are moving fast into spec suites and pre-built spaces, committing to shorter terms rather than planting long-term flags.

What’s driving the recovery? Financial services firms are propping up several of the stronger markets. Charlotte and New York both posted leasing volumes above their pre-2020 averages, with steady demand from banks maintaining higher in-office headcounts. San Francisco is getting a lift from AI-driven tech leasing, with sublet availability declining.

The ceiling is coming into view: CoStar notes that the return-to-office movement may be approaching its peak, job growth remains tepid, and rising energy costs tied to geopolitical conflict present a demand-side headwind. Moody's expects vacancy to continue rising as more leases expire through the rest of 2026.

➥ THE TAKEAWAY

Big picture: Record leasing volume and record vacancy aren't contradictory — they're a portrait of a market in structural transition. Tenants are active, but they're taking less space, on shorter terms, in better buildings. For owners of high-quality, amenitized products in the right markets, the demand signal is real. For everyone else, rising vacancy and expiring leases are still the story — and the math isn't getting easier.

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✍️ Editor’s Picks

Growth hotspots: Smaller Sun Belt metros like Ocala (3.4%) and Myrtle Beach (3.2%) are leading U.S. population growth, even as major coastal cities stagnate and national growth lags at just 0.5%.
Work smarter: Turn static documents into a searchable deal database, making it easier to source new opportunities, analyze lease terms, and connect with owners. Brokers can go from discovery to discussion in minutes with DealGround's Automated Ownership Research. (sponsored)
Shifting capital: Rising Iran conflict risks are prompting global investors to pull back from Gulf markets—where inflows hit 9.6% of GDP—and redirect capital into U.S. real estate.
Leading the pack: Utah ranks #1 for working from home with a 70.07 score, as 12% of U.S. workers are fully remote and another 27% remain hybrid.
Talent gap: Building a CRE back office shouldn't cost a fortune. Relay Human Cloud places dedicated Yardi specialists, accountants, and APMs — globally sourced, Dallas-managed, 75% less than U.S. hiring. (sponsored)
America’s soccer capital: Kansas City has invested $650M over 15 years to become a World Cup hub, expecting 650K visitors and a 145% spike in hotel rates as development accelerates.

🏘️ MULTIFAMILY

Housing gap: A 14M-unit U.S. housing shortage and $45B in maturing multifamily debt are creating prime opportunities across distressed, value-add, and development rental strategies.
Capital crunch: Multifamily developers face a sharp LP equity shortage, with investors reviewing 20–40 deals but backing just a few as core funds remain largely sidelined.
Multifamily filings: NYC multifamily filings hit nearly 12K units in March—the second-highest in 20 years—driven by major Hudson Yards and Garment District projects.
Turmoil in Brickell: An $80M foreclosure suit has hit JDS Development’s planned 67-story Mercedes-Benz-branded Miami condo tower after a loan default, despite efforts to secure up to $755M in new financing.

🏭 Industrial

Demand jitters: Slowing manufacturing activity—including a drop in Texas’ production index from 12.8 to 6.8 and flat employment—signals rising uncertainty that could delay leasing and expansion decisions.
IOS expansion: Alterra acquired five fully leased industrial outdoor storage sites across Tampa and Orlando, adding 23 acres and 96K SF as it grows its Florida footprint to 35 properties.
SoCal selloff: Rexford Industrial sold three Southern California properties for $86.2M, including one Orange County asset that traded at a loss, signaling selective cracks in a historically tight market.
Indy pickup: Hillwood acquired a fully leased 554K SF Indianapolis warehouse for $41.7M ($75/SF), reflecting continued demand for modern distribution space in key Midwest hubs.

🏬 RETAIL

Retail resilience: Retail sales rose 3.6% and foot traffic climbed 4.7% in February, with apparel surging while big-ticket categories like furniture lagged amid more selective consumer spending.
Shopping on sale: Nuveen acquired a 93K SF Chicago shopping center for $27M, betting on stable, grocery-anchored retail despite pricing pressure from higher interest rates.
Leverage is shifting: Retail landlords are tightening lease terms and tenant screening as vacancy holds near 4.3% and recession fears rise, giving owners more control in a supply-constrained market.

🏢 OFFICE

Rent divergence: A record-setting $327/SF lease at 9 W. 57th highlights a widening gap as demand concentrates in top-tier offices while older buildings struggle with rising vacancies.
Taking the loss: The Transamerica Pyramid sold for $691M at a loss to its prior owners, highlighting ongoing valuation pressure in office despite record rents nearing $300/SF for top-tier space.
Raising the bar: Raising Cane’s is investing $100M to renovate a 400K SF office in Plano as it relocates its corporate hub and expands its North Texas footprint.

🏨 HOSPITALITY

Historic deal: A Texas billionaire acquired over $200M in debt tied to The Greenbrier, positioning itself to take control of the historic West Virginia resort.
Tough market: A 252-key Alexandria Hilton sold for $58M—nearly half its 2018 price—as declining performance and broader lodging headwinds weigh on valuations.
Huntsville financing: Forman Capital provided a $20.5M bridge loan to refinance a newly built 112-key Hotel Indigo in Huntsville ahead of its planned opening.

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📈 CHART OF THE DAY

CRE Trivia (Answer)🧠

New York City — which launched the country's first congestion pricing program in 2025, charging drivers a toll to enter Manhattan below 60th Street. The program was modeled after similar systems in London and Stockholm and was designed to reduce traffic while generating funding for public transit improvements.