The office sector is showing early signs of stabilization, with rising workplace attendance and steady absorption supporting demand despite continued softness in office-using job growth and the lingering effects of hybrid work, according to a Marcus & Millichap report.
Office utilization has continued to trend higher, even as remote and hybrid arrangements remain entrenched. Average office attendance over the trailing 12 months ended March was still 31% below pre-pandemic norms, though that represents an improvement of roughly five percentage points from a year earlier.
Increased in-office activity has helped support steady gains in demand, contributing to eight consecutive quarters of positive net absorption. Over the past two years, total office absorption has reached approximately 176 million square feet, broadly in line with the historical annual average from 2010 to 2019.
At the same time, national fundamentals have continued to improve from prior-cycle lows. U.S. office vacancy has declined from a peak of 17.3% in 2024 to 16.1%, as of the first quarter of 2026.
Performance, however, remains highly concentrated by geography and asset quality. Markets with the strongest demand momentum and lowest vacancy rates include a mix of coastal and Sun Belt metros such as San Francisco, Miami and the Inland Empire.
The recovery is also increasingly defined by a pronounced flight to quality. Class A properties accounted for 71% of total net absorption, despite representing roughly 40% of total inventory. Newer office buildings delivered since 2010 continue to outperform, with average vacancy rates of just 8%, compared with the 18% rate seen in 1980s-era assets.
Smaller and more flexible space profiles are also showing relative strength. Offices under 250,000 square feet report an average vacancy rate of 12.9%, compared with 17.3% for larger-format buildings.
On the supply side, new development remains historically constrained. Office construction has fallen to near-record lows in 2025 and is expected to decline further in 2026, limiting near-term supply pressure and helping stabilize fundamentals.
Capital markets activity is also beginning to reflect a shift in pricing expectations. Office transaction volume over the past 12 months has remained close to the elevated levels seen in 2021 and 2022, though a meaningful share of recent trades has involved distressed assets selling well below peak valuations.
That pricing reset has reduced entry costs for new investors and improved underwriting flexibility, allowing buyers to compete more aggressively on rental rates in select cases.
Improving fundamentals are expected to have spillover effects beyond the office sector. Rising workplace attendance and increased deal activity are beginning to support adjacent property types, particularly housing and retail in urban cores and surrounding office nodes.
Although a full return to five-day office attendance remains unlikely, the directional trend toward higher in-person utilization is expected to continue gradually over the coming years, reinforcing a slow but uneven normalization across the sector, the report said.
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