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Vacancy rate down, but national office sector still faces challenges

Posted By: REJournals/CommercialCafe on April 23, 2026.  For more information, please click here to read the source article.

The nation’s office sector showed a hint of improvement in March. But that doesn’t mean that this sector still doesn’t face significant challenges.

The national office vacancy rate dipped year-over-year, a modest but notable shift in a sector that has spent the last several years grappling with the aftershocks of the COVID-19 pandemic and the rise of hybrid work. According to the latest report from CommercialCafe, the U.S. office vacancy rate stood at 17.8% in March, a drop of 210 basis points from a year earlier.

That sounds like progress. But this sector is still struggling to recover.

Once challenge? Office rents aren’t growing. The average national listing rate fell to $32.80 per square foot in March, according to CommercialCafe’s report. That is down nearly 2% from the same month in 2025. At the same time, the construction pipeline remains muted, with about 29 million square feet of office space underway.

What does this mean? Demand hasn’t disappeared for office space, but it has changed.

Today’s tenants want flexibility above all else. And that shift is reshaping everything from lease negotiations to building design. Landlords are responding by offering more concessions, shorter lease terms and amenity packages that look increasingly similar to what tenants find in coworking spaces, according to CommercialCafe.

Coworking continues to carve out a larger role in the office landscape. Nationwide, coworking space has grown 16.5% on a year-over-year basis, now totaling 164 million square feet and accounting for 2.3% of all office space across the United States.

“Coworking continues to carve out a successful segment of the office universe,” said Peter Kolaczynski, director with Yardi Research. “As owners lean into turnkey and serviced offerings in addition to traditional lease offerings, we expect this growth pattern to rapidly accelerate.”

That growth is tied directly to how people are using offices today. Physical occupancy is still well below pre-pandemic norms. According to Kastle Systems’ office barometer, average office attendance hovers around 55%, with daily swings ranging from 38% to 66%.

CommercialCafe reported that lease renewals in the office sector increasingly come with demands for smaller footprints and more flexible terms. And in many markets, underperforming office properties are trading at steep discounts.

That adaptation often means borrowing from the coworking playbook. Savvy owners are offering move-in-ready suites, shared amenities and flexible lease structures.

According to CommercialCafe’s report, office sales totaled nearly $12.8 billion in March across 549 transactions, with an average price of $220 per square foot. Notably, 21 of the 25 largest office markets recorded more than $100 million in sales activity during the first quarter.

In the Midwest, the story is one of relative affordability. Markets across the Midwest region continue to offer some of the lowest office rents and sale prices in the country. Detroit remains the bargain leader, with asking rents averaging about $21 per square foot. The Twin Cities market sits slightly higher, with rents just above $27 per square foot, while also posting a 17.4% vacancy rate, one of the few major markets to come in below the national average.

Chicago leads the region in pricing and activity, according to CommercialCafe. Asking rents there averaged $28.33 per square foot in March, with vacancy at 18.2%, slightly above the national figure. The metro also dominates in sales volume, with $534 million in office transactions recorded through the first quarter. That far outpaces the Twin Cities, which ranked second in the region with $349 million in sales.

Development, however, remains subdued across the Midwest. Less than 900,000 square feet of office space was under construction across the major markets tracked in the CommercialCafe report.

One segment that continues to attract interest is medical office. While traditional office construction has slowed dramatically, with starts down about 76% since the start of the decade, medical office has proven far more resilient. Its share of new development has climbed significantly, driven by steady job growth in healthcare and a resistance to remote-work disruption.