U.S. office leasing was on the rise in the third quarter of 2026, as tenant footprints stabilized and competitive employers sought high-quality office space amid dwindling supply.
Office leasing volume nationwide totaled 62 million square feet in the third quarter, according to Newmark, in an 18 percent year-over-year uptick that was still 21 percent below pre-pandemic quarterly averages. Newmark’s quarterly report tracks leases spanning 10,000 square feet or more across 62 U.S. markets.
July through September marked the country’s sixth consecutive quarter of positive net office absorption, according to the report. The trend outpaces a 15-year low in the office construction pipeline, according to Newmark’s Jessica Morin, head of national occupier research.
A majority of pre-pandemic leases have now expired in gateway markets, according to the report, suggesting that the dust is starting to settle around hybrid work shake-ups and return-to-office mandates. An estimated 42 percent of pre-pandemic leases remain in place, with exposure at its highest in Chicago, at 53 percent, and New York City, at 50 percent.
“People are cutting by less space than they did earlier in the pandemic, where you saw people slash their portfolio and their square footage by 30 to 40 percent,” Morin said. “Now it’s looking closer to like 10 to 20 percent. Every year going forward, you’re going to see less and less leases that haven’t had a chance yet to adjust for hybrid work.”
Those hybrid offices still need desks for employees, Morin said, and companies are eager to retain employees by providing quality office spaces. As old leases expire and pandemic-era downsizing slows, some office tenants are trading up in an increasingly competitive market. The trend has led to more stability in office occupancy, according to the report, despite flat employment numbers among office users.
Vacancy rates throughout the U.S. moved down 50 basis points to 19.8 percent — still near historic highs, but edging lower by the quarter. The quarter’s sublease availability also fell by 21 percent year-over-year.
The country’s office market recovery remains uneven, however, with higher-quality buildings in gateway and Sun Belt markets attracting the majority of demand. Markets with negative absorption, like Boston, are still improving, Morin said.
Demand for trophy offices has trickled down to Class A, according to the report, with 9.5 million square feet of net absorption across the asset class year-to-date exceeding trophy’s 7.2 million square feet. Occupancy losses for Class B and C office space, too, have narrowed to 1.3 million square feet year-to-date.
The national office construction pipeline totaled just 20.3 million square feet at the end of the third quarter, according to Newmark, in its lowest level since 2012. Just a handful of Southern markets are leading the new supply charge, including Dallas, Palm Beach and Miami.
“New inventory will continue to do well. However, it could take away from the space that they’re leaving behind,” Morin said.
Nominal asking rents are edging up across asset classes, according to the report, but when adjusted with the GDP deflator — a metric that accounts for corporate purchasing power — real rents are still 9.9 percent below where they were at the outset of 2020. Average concessions, such as free rent and tenant improvement allowances, remain near an all-time high of $103 per square foot, Morin said, but have declined from a peak of $107 per square foot earlier this year.
“It’s still a very nuanced picture in the office market,” Morin said. “You have those that are absolutely leading, and then those that are lagging. I think the gap is going to continue to get bigger and bigger between those two.”
Emily Davis can be reached at edavis@commercialobserver.com.
Leave a Reply