Daily Top 5
Office leasing sees selective recovery
Article originally posted on CoStar on Oct 7 2026
Office leasing has bounced back substantially over the past year, but structural demand and supply issues are weighing on deal sizes, making it difficult for volume to fully recover its customary level before 2020.
Occupiers executed an average of about 105 million square feet in new lease transactions over the past four quarters. This represents a meaningful increase from the prior four-quarter period, when an average of only about 95 million square feet in new lease commitments were executed. However, it is still roughly 10 million square feet below the amount of office space typically leased between 2015 and 2019.
The overall trend obscures a consistent three-year pattern in the office leasing market’s composition: deal sizes have remained smaller, even as the number of lease transactions has largely returned to its historical norm.
Earlier in the decade, many large office occupiers consolidated into smaller footprints in response to post-pandemic ways of working. This was perhaps the dominant factor in bringing down average lease transaction sizes.
Since then, per-worker space requirements have stabilized. However, elevated construction and financing costs have stifled office construction activity. For nearly three full years, quarterly construction starts have languished near 5 million square feet, close to the lowest level ever recorded.
Renovation activity is also unusually low. As a result, major occupiers seeking to relocate to updated space have relatively few available options.
This has tilted the leasing market toward tenants with smaller requirements, who continue to sort themselves into the most desirable locations, filling in the remaining gaps in premium buildings.
Geographic variability also remains a feature of the current office leasing market. A few cities are showing strong recovery, exceeding the overall trend. San Francisco, led by a boom in AI-driven leasing by tech companies, has seen quarterly leasing volume rebound past the market’s pre-pandemic level of 2% of office inventory.
Volume is also elevated in New York, Nashville, Tennessee, and Miami, while Charlotte, North Carolina, and Dallas have recently seen office leasing activity return to historically typical levels.
In other major U.S. office markets, though, leasing volume still lags well behind its level from the late 2010s. On average, the gap is more than 10%. In San Diego and the Oakland/East Bay area in California, the office leasing gap is nearly 50%.
The situation is unlikely to change any time soon. Hiring of knowledge workers has slowed to a crawl, even turning negative in some locations.
This means that there is little demand-side pressure in most markets to catalyze speculative office construction. Even pre-leased or build-to-suit supply is proving more challenging to execute in today’s high-cost environment, though there have been notable exceptions in New York, Chicago and elsewhere.
The likely outcome is that small tenants will remain the most active, keeping deal sizes low and transaction counts high, while supporting relatively strong office rent growth in the highest-quality buildings and submarkets.