Key Takeaways:
- In May, the national office vacancy rate was 17.6% following a decrease of 180 basis points (bps) year-over-year (Y-o-Y).
- The national office listing rate averaged $33.61 per square foot last month, which was 1.4% lower than values recorded in May 2025.
- Nationally, the modest office supply pipeline inched up last month to nearly 28.73 million square feet of office space under construction.
- With close to $3.7 billion in deals closed since the start of the year, Manhattan, N.Y., topped the list for sales. It was followed by San Francisco ($2.3 billion) and the Bay Area ($1.7 billion).
- Miami and Manhattan, N.Y., averaged the lowest vacancy rates in May among the nine large U.S. office markets where vacancy was below the national average.
- Western and Northeastern U.S. markets had most of the leasing rates that were above the national average, while Southern and Midwestern markets claimed some of the most affordable office asking rates in May.
- Boston; Manhattan, N.Y.; and Dallas had the most active construction pipelines and were the only markets where more than 2 million square feet of new office space was in development last month.
Trends & Industry News
Valuation Pressures Mount for CBD Properties
The commercial real estate sector is experiencing a pronounced division between property types with deep discounts and mounting distress heavily concentrated among assets that cannot adapt to evolving tenant demands. Specifically, out of more than 800 million square feet of space traded nationally since 2024, distressed transactions climbed to 19.4% — a sharp increase from the 6.2% recorded between 2021 and 2023.
This strain is particularly acute in commercial business districts (CBDs), where distressed assets accounted for 34.6% of transacted square footage since 2024, as compared to 24.5% in broader urban environments and just 12.1% in suburban markets. Furthermore, the average scale of a distressed sale has doubled from roughly 100,000 square feet prior to the pandemic to approximately 200,000 square feet since 2024, thereby revealing that larger properties lack the flexibility required to navigate major demand shifts.
Consequently, as flight to quality consolidates market demand into a limited pool of properties, buildings in central city cores are struggling to retain value. As an example, among properties in CBDs with multiple historical sale prices for comparison, 73% sold at a discount since 2024. For comparison, discount rates reached 48% for urban assets and 42% for suburban buildings.
Seattle provides a clear example of these compounding pressures. Here, the urban core has been hit by the dual effect of hybrid work schedules and sweeping technology sector layoffs. For instance, in the city’s CBD, the 44-story U.S. Bank Center building is set to be sold for $280 million, representing a substantial, 54% price drop compared to its 2019 transaction price.
“The destruction of value that we have discussed for years is showing through in the sales data. It’s not every transaction, but it is significant. With this decrease cost in acquisition comes opportunity – whether that is conversions to apartments, repositioning to best-in-class office and coworking, or full-on redevelopment and revitalization projects.”
Peter Kolaczynski, Director, Yardi Research
Notably, these localized market pressures persist despite the national vacancy rate dropping to 17.6% — a 230-bps decline from its peak in March of last year. However, this downward trend does not reflect a meaningful increase in physical office utilization. Instead, data from Kastle’s Back-to-Work Barometer indicates that office attendance has hovered around 55% for the last few years, thus establishing hybrid work as a widely accepted norm.
Looking forward, a historically low construction supply pipeline will help alleviate inventory pressures throughout the coming years. Even so, to capture remaining growth, property owners will need to prioritize asset flexibility to counter uncertainties from inflation and AI adoption, which will continue to drive both the ongoing flight to quality and the expansion of coworking spaces.
Listing Rates & Vacancy
San Francisco Vacancies Decline as Market Stabilizes
The national average full-service equivalent listing rate for office space was $33.61 per square foot last month after a dip of 1.4% Y-o-Y. Similarly, the national vacancy rate dipped 180 bps compared to the previous year to rest at 17.6% at the close of May.
Along the same lines, of the 25 largest markets that we analyzed, 17 saw decreases in their respective vacancy rates as compared to May of last year.
San Francisco led the list with a 520-bps drop in year-over-year office vacancies to bring the rate down to 23.3% in May. This significant improvement marks a steady decline since the market’s vacancy rate peaked at 29.3% in January 2025.
The reversal also directly aligns with a stabilization in office employment following consecutive years of job losses: Due to its dense concentration of tech companies, the San Francisco metro area was disproportionately affected by the layoffs that commenced in 2022. At the same time, the information sector in tech is uniquely positioned to gain from the ongoing expansion of artificial intelligence.
Furthermore, AI-driven advancements are creating positive economic spillover effects into neighboring industries, including finance and professional and business services. As such, this technological tailwind has successfully halted the decline in local office employment, ultimately driving down commercial vacancy rates across the market.
Top Listings by Metro Area: May 2026
| National | $33.61 | 1.4% | 17.6% | −180 bps | ||
|---|---|---|---|---|---|---|
| Bay Area | $55.68 | 5.2% | 22.2% | −280 bps | 525 University Avenue | $160.87 |
| Atlanta | $36.64 | 4.7% | 18.2% | −170 bps | 3344 Peachtree | $75.15 |
| Twin Cities | $27.73 | 4.2% | 17.9% | 60 bps | International Centre | $42.39 |
| Phoenix | $29.65 | 4.1% | 16.4% | −100 bps | The Watermark | $56.00 |
| New Jersey | $35.18 | 3.5% | 16.1% | −250 bps | Harborside Financial Plaza 10 | $66.08 |
| Nashville | $32.56 | 3.1% | 16.0% | −210 bps | Gulch Union | $56.62 |
| Tampa | $30.74 | 2.3% | 14.7% | −180 bps | MetWest International – MetWest Three | $54.00 |
| Austin | $47.00 | 1.9% | 24.0% | −440 bps | 500 West Second Street | $84.14 |
| Manhattan | $69.29 | 1.8% | 13.1% | −260 bps | 50 Hudson Yards | $250.00 |
| Chicago | $28.34 | 1.6% | 18.1% | −150 bps | 333 North Green | $65.29 |
| Miami | $58.41 | 1.2% | 13.2% | −140 bps | 1450 Brickell | $160.00 |
| Houston | $28.68 | 0.5% | 23.3% | 160 bps | Marathon Oil Headquarters | $74.20 |
| Seattle | $35.43 | 0.5% | 23.3% | −250 bps | City Center Bellevue | $84.69 |
| Philadelphia | $31.26 | 0.3% | 18.4% | −80 bps | Three Logan Square | $56.07 |
| Dallas | $31.69 | −0.2% | 20.4% | −320 bps | 23Springs | $113.59 |
| Washington, D.C. | $40.33 | −0.5% | 19.3% | 0 bps | 2100 L Street NW | $84.09 |
| Los Angeles | $41.73 | −0.5% | 14.1% | −170 bps | Century City Center | $126.00 |
| Portland | $28.10 | −1.2% | 22.0% | 60 bps | Fox Tower | $50.53 |
| Denver | $30.17 | −1.5% | 19.9% | −380 bps | Block 162 | $56.88 |
| Detroit | $21.24 | −1.7% | 23.3% | −70 bps | Michigan Central Station | $40.00 |
| San Francisco | $62.11 | −3.2% | 23.3% | −520 bps | Sand Hill Collection – The Quad | $210.00 |
| Boston | $44.03 | −4.4% | 16.9% | 0 bps | One Canal Park | $127.71 |
| San Diego | $42.55 | −5.8% | 23.6% | 60 bps | 2100 Kettner | $69.00 |
| Orlando | $26.34 | −6.0% | 17.2% | 30 bps | CNL Center II | $54.19 |
| Charlotte | $31.87 | −9.9% | 18.6% | 100 bps | 110 East | $55.00 |
Transactions
Portland Prices Slowly Recover Following Prolonged Post-COVID Slump
In May, year-to-date office sales added up to a little more than $23 billion across 1,025 transactions, while sale prices averaged $213 per square foot. Additionally, nearly halfway through the year, a total of 11 of the top 25 metros analyzed for this report saw overall sales in excess of $500 million during the first five months of 2026.
The Portland, Ore., market, in particular, has seen significant pricing corrections with 53% of office transactions since 2024 closing at discounted rates relative to their previous purchase prices. This pricing pressure is clearly reflected in historical valuation shifts: The market’s average sale price plummeted to $91 per square foot in 2025, representing a 73% drop from peak values recorded in 2020. Although pricing showed a modest recovery in 2026 to an average of $119 per square foot, overall valuations remain significantly depressed compared to historical highs.
For example, in April, Central City Concern purchased a 108,000-square-foot, low-rise office building located at 121 NW Everett St. The property was acquired from HMH for $11 million — a transaction that represents a steep, 77% discount compared to the $47.3 million price tag that the asset commanded back in 2015.
Austin, Texas, Office Pipeline Halved Over the Past Year
As of May, roughly 28.73 million square feet of office space was under construction in the U.S. markets we tracked for this report. According to Yardi research data, this represented roughly 0.4% of stock. Also as of May, developers have delivered 9.9 million square feet of office space.
In Texas, Austin’s under-construction office supply pipeline shrank by more than 50% during the last 12 months, even as developers broke ground on more than 600,000 square feet of new workspace during that same timeframe. Despite this contraction, the market maintains one of the largest development pipelines among the nation’s top 25 metropolitan areas: Currently, 1.2 million square feet of office space is actively under construction, which accounts for 1.3% of Austin’s existing inventory.
Yet, in recent years, the metro has found it difficult to absorb its incoming inventory pipeline, even as it experiences resilient office employment numbers and a steady influx of corporate relocations. In fact, although Austin’s office vacancy rate dropped by 440 bps in the last year, average vacancies still hover at 24% — the highest figure recorded across the country’s top 25 metros. While the reduction in new construction activity marks a positive shift toward rebalancing the market, fully absorbing the existing inventory will be a lengthy process, thus ensuring that operational challenges persist for the foreseeable future.
Western Markets
San Francisco Tops Lease Rates, San Diego Leads Office Construction
Vacancy rates were above the national average of 17.6% in May in the majority of the Western U.S. markets that we surveyed for this report. As a matter of fact, with the exception of Los Angeles (14.1% vacancy) and Phoenix (16.4%), all markets in this group averaged vacancy rates higher than 19% last month.
Specifically, San Diego office space vacancy was the highest in the region, averaging 23.6% in May. Next, San Francisco was second with vacancy averaging 23.3% last month. Plus, office space in San Francisco topped the regional list for leases: Asking rates here averaged a little more than $62 per square foot in May, which was almost double the national average of $33.61.
Then, neighboring Bay Area office space in California was the second-priciest in the region last month with asking rates averaging nearly $55.70 per square foot — the only other Western U.S. market on our list where average rates surpassed $50 per square foot last month.
Not far behind, San Diego (#3) and LA (#4) each averaged more than $40 per square foot — the only other markets in the region to do so — and closed out the standout block of California markets occupying the top four spots on the list for rents.
West Regional Highlights
| Bay Area | $55.68 | 22.2% | $1,671 | $327 | 0.41 |
|---|---|---|---|---|---|
| Phoenix | $29.65 | 16.4% | $521 | $163 | 0.60 |
| Seattle | $35.43 | 23.3% | $297 | $292 | 0.02 |
| Los Angeles | $41.73 | 14.1% | $752 | $341 | 1.44 |
| Portland | $28.10 | 22.0% | $106 | $119 | – |
| Denver | $30.17 | 19.9% | $369 | $84 | 0.67 |
| San Francisco | $62.11 | 23.3% | $2,264 | $614 | 0.59 |
| San Diego | $42.55 | 23.6% | $454 | $206 | 1.73 |
| National | $33.61 | 17.6% | $23,038 | $213 | 28.73 |
Otherwise, Portland, Ore.; Phoenix; and Denver were the only large markets in the Western U.S. where office asking rates were below the national average in May. Each averaged around or less than $30 per square foot.
Meanwhile, when looking at office sales in the region, data showed that northern California markets held a comfortable lead. More precisely, San Francisco — which saw nearly $2.3 billion in sales close during the first five months of the year — took the top spot, followed by the neighboring Bay Area, where year-to-date transactions approached $1.7 billion.
Further south, Los Angeles commanded the third-highest sales total in the region so far this year ($752 million). It was followed by sales of Phoenix office space, which added up to $521 million since the start of the year through May. San Diego and Denver were the only other Western U.S. markets to see office sales surpass $300 million during the first five months of the year.
Granted, high-profile assets in gateway markets continue to command top-tier prices. Namely, San Francisco office sales closed through May averaged $614 per square foot, which was the highest in the Western U.S. and the second-highest nationwide thus far.
California markets also led the region in terms of development in May: San Diego had a little more than 1.7 million square feet under construction, followed by Los Angeles office space under development that totaled more than 1.4 million square feet. Together, they accounted for more than 58% of the nearly 5.5 million square feet currently in development across the largest markets in the region.
Midwestern Markets
Office Sales in Chicago Surpass $800 Million, Twin Cities Market Maintains Lowest Vacancy
The top Midwestern U.S. office markets we looked at for this report remained some of the most affordable in the country in May, in terms of both average listing rate and for-sale price per square foot.
In this region, asking rents for Detroit office space were the most accessible with rates here averaging $21.24 per square foot. Next, the average asking rate for office space in Minneapolis; St. Paul, Minn.; and the wider Twin Cities metro submarkets rested at $27.73 per square foot. At the same time, occupancy levels in the Minnesota market last month also kept vacancy at 17.97% to make it the closest large market in the Midwest to approach the national average of 17.6% last month.
Unsurprisingly, Chicago office space was the region’s priciest for leasing in May with asking rents averaging $28.34 per square foot. Additionally, the Windy City’s occupancy levels averaged an 18.1% vacancy rate, which was also relatively close to the national average.
Midwest Regional Highlights
| Twin Cities | $27.73 | 17.9% | $405 | $112 | 0.25 |
|---|---|---|---|---|---|
| Chicago | $28.34 | 18.1% | $826 | $109 | 0.16 |
| Detroit | $21.24 | 23.3% | $5 | $15 | 0.61 |
| National | $33.61 | 17.6% | $23,038 | $213 | 28.73 |
