April 29, 2026 · By Mariusz Kurylo · Commercial Real Estate Collapse

CoStar Revises 2026 Forecast: U.S. Office Vacancy to Stay Near Record Highs Through Year-End

Published: April 29, 2026 | By Mariusz Kurylo

CoStar Group, the commercial real estate data firm whose vacancy statistics are the industry standard, revised its 2026 U.S. office market forecast in late April — and the revision was not optimistic. According to CoStar data reported by the Financial Times and the Wall Street Journal, the national office vacancy rate was expected to remain near 22–23% through the end of 2026, with meaningful recovery now pushed to 2027 at the earliest.

The revision reflected a combination of factors: continued demand weakness from hybrid and remote work adoption, the supply of new sublease space from companies reducing their footprints, and the emerging headwind from tariff-driven economic uncertainty that had caused several major office lease expansions to be delayed or cancelled in early 2026.

The April 2026 Snapshot

As of April 2026, the national office vacancy data from CoStar and CBRE told a consistent story of persistent stress with no near-term catalyst for meaningful improvement:

  • National office vacancy rate: 22.8%, near the all-time high set in 2025
  • Sublease availability: Over 200 million square feet nationally — a record, according to CBRE data cited by Bloomberg
  • New leasing activity: Running approximately 30% below pre-pandemic norms in most major markets
  • Distressed office sales in 2025: 204 buildings sold at an average of 60–90% below peak value, per Wall Street Journal research

The Financial Times noted that the combination of high vacancy and record sublease availability meant that even tenants who wanted to expand could find premium space at dramatically below-market rents — further depressing the effective rent figures that property owners needed to service their debt.

Tariffs Add a New Headwind

The April 2026 CoStar revision explicitly incorporated the economic uncertainty created by the Liberation Day tariff regime's one-year anniversary. Reuters reported that several financial services firms and manufacturing companies that had planned 2026 office expansions had put those plans on hold, citing uncertainty about revenue and headcount growth in a tariff-affected economy.

Financial tenants — banks, asset managers, insurance companies — are among the largest office users in major cities. With commercial real estate loan losses mounting on bank balance sheets, several large financial institutions had announced internal real estate consolidations rather than expansions, according to the Wall Street Journal's real estate desk.

The net effect: the office demand recovery that CoStar had projected for mid-2026 was now expected to be pushed into 2027, with the tariff uncertainty adding 6–12 months to the market's timeline for stabilization.

The Conversion Opportunity — and Its Limits

One frequently cited counterbalance to the office crisis is the potential for office-to-residential conversion — turning empty towers into apartments to address the housing shortage. The Wall Street Journal published an extensive analysis in April 2026 on the state of the conversion trend.

The verdict was nuanced. Conversions are happening — Bloomberg reported approximately 55,000 apartment units were in the conversion pipeline nationwide — but the pace is far below what would be needed to meaningfully address either the housing shortage or the office vacancy problem. The reasons are technical and economic: most office towers are not designed for residential use (no operable windows, floor plate depths that leave interior space without natural light), and the conversion costs are high enough that they only work at dramatically discounted acquisition prices.

Reuters noted that the most successful conversions were happening in cities — Cincinnati, Cleveland, Pittsburgh — where office buildings could be acquired at very low prices and where housing demand was sufficient to support the project economics. In high-cost markets like San Francisco and Manhattan, the math rarely works without substantial government subsidy.

What Investors Are Doing With Distressed Office Assets

Despite the bleak fundamentals, Bloomberg and the Wall Street Journal both reported active interest from opportunistic investors in the most deeply distressed office assets. Private equity firms and real estate opportunity funds had raised over $50 billion specifically for distressed commercial real estate by the end of 2025.

The investment thesis: buy at 85–95 cents on the dollar discount, reposition or convert, and capture the eventual recovery when it arrives — whether in 2027 or 2028. For investors with long time horizons and the capital to carry assets through the workout period, the entry prices in April 2026 represented generational buying opportunities in many markets.

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Sources: Financial Times, The Wall Street Journal, Bloomberg, Reuters, CNBC

Disclaimer: This article is for informational and educational purposes only. It does not constitute financial, legal, or investment advice.