Beneath signs that the U.S. office market is stabilizing, a deeper divide is taking hold between buildings that are performing and those that are not.
CoStar data shows the national office vacancy rate at roughly 14% in the first quarter, about 20 basis points below its mid-2025 peak. That modest improvement is expected to hold through the rest of 2026, giving the appearance of a market that has found its footing.
But that topline stability obscures a more fractured reality.
"There are a couple of different ways to look at this," Phil Mobley, CoStar national director of office analytics, tells GlobeSt.com.
At the property level, the market is increasingly polarized, with most buildings falling into one of two camps.
"If you take quality out of it and look where vacancy is concentrated, about two-thirds of buildings today — and this is just those traditional for-lease — are 90% occupied or more," says Mobley.
"Meanwhile, about 20% of them are 75% occupied or less. You add that up, and you have 85% plus of buildings that are on one extreme or the other."
That leaves little middle ground—and starkly different financial outcomes. Buildings with occupancy above 90% are "at least breakeven and probably profitable," Mobley says, while those at the other end of the spectrum "could be having some financial trouble."
The divide is also widening as demand continues to concentrate in the most desirable space. Class A properties generally maintain higher occupancy levels, reflecting tenant preference for newer, better-located buildings. "New space that enters the market is overwhelmingly Class A," Mobley says.
Even so, higher-end assets are not immune to pressure.
"When companies decide to cut costs through real estate, cutting expensive real estate is one way to do that. We saw Class A vacancies rise faster than Class B in the first years of this decade."
Still, the broader trend is one of uneven demand rather than broad-based recovery. Vacant space is increasingly concentrated in already struggling properties, making it harder for those buildings to regain footing.
"It's the rich getting richer and the poor getting poorer from an occupancy point," Mobley highlights.
"If you're in that group of low occupancy buildings and you lose a tenant, then it's going to be very difficult to find a replacement tenant at almost any rent because there just isn't this organic surge of demand. What we have is demand for the most desirable space and not demand that's sufficient to backfill the buildings that get vacated."
That dynamic helps explain why vacancy is expected to remain relatively flat through this year before beginning a gradual decline. CoStar forecasts a "long, slow descent" starting in 2027, though the improvement is likely to come less from a surge in leasing and more from a reduction in supply.
As more obsolete office properties become economically unviable to reposition or convert, demolition activity is expected to pick up.
"Starting next year, even though we don't see a whole lot happening with new demand, we expect demolitions to exceed new deliveries," Mobley says.
For now, the headline numbers suggest stability. Underneath, however, the office market is becoming increasingly defined by a split between assets that are holding their ground—and those slipping further into distress.
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