Office Is Dead...?

National Office Vacancy at 19.8% — But That Figure Is Hiding Two Completely Different Markets

CoStar's Q1 2026 Office Vacancy Report landed last week with the headline number: national office vacancy at 19.8%, up from 18.9% a year ago. The figure has predictably generated another round of "office is dead" coverage in the financial press. But if you're underwriting an office acquisition — or managing one — using the national vacancy figure as your reference point is analytically lazy and commercially dangerous.

The 19.8% national number is the average of two markets that have almost nothing in common. Understanding the bifurcation is the underwriting task.

The trophy market:

Class A+ space — defined as sub-2010 vintage, full amenity builds, LEED Gold or Platinum certification, walkable urban core locations with strong transit access — is running vacancy of 9.5%–13% in gateway markets, according to CBRE's Flight to Quality research. In Manhattan's Hudson Yards and Midtown South corridors, true trophy vacancy is closer to 7%–9%. In Boston's Seaport, 10%–12%.

These properties are not experiencing the office crisis. They are experiencing healthy, if subdued, leasing activity from tenants downsizing from commodity space but upgrading on quality. Law firms, financial services, and technology companies that are requiring in-office attendance are concentrating in the best buildings. Landlords of these assets are achieving rents that would not have been achievable in 2019.

The commodity market:

Class B and Class C office — pre-2000 vintage, limited amenity, suburban and secondary-market — is a different universe. Vacancy in this tier is running 24%–31% in oversupplied markets, with effective concession packages — TI packages of $80–$120 per square foot and 18–24 months free rent on longer terms — that put NOI deeply negative in the near term. Sublease availability sits above 5% of total inventory in markets like Dallas, Chicago suburban, and Atlanta suburban, adding a shadow supply overhang that will take years to clear.

The NOI picture is correspondingly bifurcated. Trophy office NOI is flat to modestly growing — the rent-per-square-foot gains on leases signed in 2024–2026 are offsetting higher opex from amenity investment. Commodity office NOI is structurally impaired — concession costs, rising insurance, and deferred capital spending are compressing net operating income in ways that traditional cap rate analysis doesn't adequately capture.

The underwriting implication this week:

If you are looking at an office acquisition — or modeling the value of an office asset in your existing portfolio — three adjustments to your underwriting are appropriate:

Replace the national vacancy assumption with submarket Class-specific vacancy. A 19.8% national figure applied to a trophy Midtown asset overstates vacancy risk by 8–10 percentage points. Applied to a suburban Class B asset, it understates it.

Model concession-adjusted net effective rent, not asking rent. The gap between asking rent and net effective rent in commodity office is 30%–45% in high-concession markets. Your NOI model is wrong if it's using asking rent.

Apply a differentiated exit cap based on asset quality, not asset class. Trophy office in gateway markets may exit at 6.5%–7.5% in 2028–2030. Commodity suburban office may not have an institutional exit at all — the hold-to-conversion thesis needs to be modeled explicitly.

The one-line read: National office vacancy at 19.8% is simultaneously too pessimistic for trophy assets and too optimistic for commodity space. The bifurcation is the market.

Klyvora note: Building submarket-specific vacancy analyses, modeling concession-adjusted NOI, and maintaining cap rate comp databases across office markets requires sustained, structured analytical work. Klyvora's offshore real estate analyst teams provide this as an ongoing service — so your underwriting reflects market reality, not national averages.

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