US Office Market Outlook 2026: Vacancy, Rents & Sales | Phil Mobley, CoStar

US office vacancy sits at 13.8% while rents rise and inventory actually shrinks. CoStar's Phil Mobley breaks down the two-tier office market at mid-2026.

Phil Mobley, National Director of Office Analytics at CoStar Group, joins Michael Bull, CCIM to explain why the office headlines and the office market have stopped matching. National vacancy peaked at 14.1% a year ago and now sits near 13.8%, with four consecutive quarters of positive absorption totaling roughly 20 million square feet. For perspective, that full year of demand would have been one decent quarter in 2018.

The supply side is where this cycle breaks from history. New construction starts are running about 5 million square feet per quarter, a generational low, and for the past two quarters CoStar's data shows outright supply contraction: more office space is being demolished or converted than delivered, which has never happened before.

Mobley also corrects the most common misconception about the office recovery. It is not simply Class A winning and Class B losing. Trophy assets, the top 5% of inventory, are performing strongly, and solid B and B-minus buildings serving price-sensitive tenants held up better than most people assume. The real occupancy damage landed on A-minus and B-plus product caught in the middle: not distinctive enough to compete with trophy space, too expensive to compete on price.

Also covered: why AI has been an unambiguous demand tailwind so far and the venture-capital risk hiding inside it, why return-to-office gains raise foot traffic without raising space needs, how New York and Dallas preview where the rest of the country is heading, why lease sizes have run 15% below pre-pandemic levels for nearly three years, and the capital markets shift as institutions climb back from 10% to 15% of office deal volume to around 20%, buying buildings to keep them as office. Plus the point every landlord should sit with: the total vacancy number is not the relevant number. Competitive vacancy is, and a landlord without capital to fund tenant improvements does not really have leasable space.

In this episode:00:00 Is Office the Buy of the Decade?01:19 The US Office Market: Smaller, but Recovering02:22 Vacancy at 13.8% and Four Quarters of Positive Absorption04:30 New Supply: Generationally Low and Now Contracting06:02 Trophy vs. A-Minus: Where Occupancy Actually Collapsed10:34 AI and Office Demand: A Tailwind With an Asterisk14:13 Return to Office: Foot Traffic vs. Space Demand16:40