The downward spiral in office vacancy may finally be approaching its bottom, according to multiple national real estate data providers as well as the Voit Real Estate Services’ quarterly market reports. On a national level, CRE data provider CoStar is reporting that U.S. office leasing remained steady in Q2 2026, reaching a level that remains only slightly below the 2015–19 quarterly average.
“The second-quarter results suggest a market demonstrating a sustained recovery but also bending to constraints imposed by supply and demand,” said Phil Mobley, national director of office analytics at CoStar Group. “While there has been a slowdown in hiring, especially in the traditional knowledge-oriented industries, organizations in some sectors have been actively committing to new space, including financial service institutions, many of which have firmer expectations for frequent office attendance.”
The national office vacancy rate declined to 17.7% in June, 170 basis points lower year over year, according to Yardi Matrix, but vacancy rates vary wildly by market. Miami and New York City are just over 13%, while San Francisco, Seattle, and Austin are all hovering around 25%. The decline in vacancy has been aided by a slowdown in construction (29.6 million SF currently underway versus 41.5 million SF in June of 2025), and 11.8 million SF of office-to-multifamily conversions in 2025 — the highest level recorded for any year. Office sales are also on the rise, as sales volume reached $30 billion through June, with properties selling at $195 PSF on average, as compared to $23 billion for the first two quarters of 2025 at $189 PSF.
The SoCal Outlook
Voit provides in-depth quarterly research for the San Diego office market and the Orange County office market, and there is reason for optimism in both. Ryan Bracker, Senior Vice President/Partner in the San Diego office, had this to say about his market, but it could easily be applied to all of Southern California (and the nation): “The coming quarters will determine whether market vacancy has truly peaked and whether the office market has indeed found its bottom. For now, however, the early signs are encouraging.”
San Diego
Following two consecutive quarters of modest positive absorption, San Diego’s vacancy rate of 13.40% remains virtually flat compared to Q2 2025 (13.13%), as does its availability rate of 16.31%, indicating that the market may be stabilizing. The 16.2 million SF downtown continues to struggle, with a whopping 33.26% vacancy rate, nearly double that of Q1 2020 (17.98%), when the pandemic triggered a nationwide lockdown. However, the next two largest submarkets stand in stark contrast to the downtown, with the 11.3 million SF Kearny Mesa posting an 8.4% vacancy rate in Q2 and the nearly 9 million SF University Town Center (UTC) market registering a 10.22% vacancy rate. Due to decreased leasing activity, increased availability, and competition from sublease office space, landlords are offering significant concessions such as first-year promotional teaser rates and free rent to lure prospective tenants, meaning the effective rates are much lower.
The average asking full-service gross (FSG) lease rate per square foot per month in San Diego County was $3.16 at the end of Q2 2026, virtually unchanged from Q2 2025’s rate. But the number has been inflated by the delivery of new office product in recent years, with back-to-back deliveries of 1 million SF of new office, including the 1.6 million SF delivered in 2025. There were no new “traditional” office deliveries to date in 2026, and there are currently no traditional office buildings under construction, which should help absorption. Note that 75,000 SF of medical office space was delivered in Chula Vista. In addition to the construction slowdown, an increase in defense spending due to the ongoing conflict with Iran and the war in Ukraine will benefit the San Diego economy, as it remains one of the nation’s premier defense markets.
The sales market in San Diego has heated up and is on pace for a second consecutive year of $1 billion-plus sales after averaging $642 million over the previous two years. That figure is misleading, however, due to the exit of institutional investors like Irvine Company and Regent Properties. Irvine Company sold its six-building portfolio at a steep discount in late 2025, including the city’s tallest tower, One America Plaza, for $120 million, which it had acquired in 2006 for about $300 million.
Bracker notes another promising sign for the office market is that owner-user sales skyrocketed this quarter. There were 27 transactions, which equals the highest quarterly total of the past four years. The largest sale was by the nonprofit Prebys Foundation, which acquired the 123,000 SF Kettner & Ash building in San Diego’s Little Italy neighborhood for $30 million, two years after signing a 19,000 SF lease at the building.
Orange County
OC has seen a dramatic drop in its vacancy rate in the last year, as four straight quarters of positive net absorption have dropped the number from 15.79% to 13.03% — a decrease of 276 bps. Total availability saw a similar decrease, from 19.50% to 16.69%. The decrease has been fueled by a perfect storm of factors, including a significant slowdown in the development pipeline as new office starts don’t currently pencil and a conversion and demolition cycle taking obsolete buildings out of the leasing mix.
As Chris Drzyzga, SIOR, Senior Vice President/Partner in the Irvine office, notes in his market analysis, “more than six million square feet of office inventory has been removed from the Orange County office base through demolition, conversion, or acquisition by owner-users… representing approximately 6% of the county’s total office supply.”
Average asking lease rates for Orange County office space are up 5.4% year over year to $2.92 PSF, but there is a wide gap between class and location. For instance, the asking rate for Class A space is $3.26 PSF versus Class B at $2.60 PSF. As in San Diego, concessions remain generous in this cycle. Free rent periods and tenant improvement allowances remain standard components of executed transactions across all classes.
While some of the demand is being driven by return-to-office policies by the state and the private sector, much of it is being fueled by aerospace and defense expansion and technology companies tied to the AI economy, as well as major mixed-use investment.
All of these factors mean the market is entering the second half of 2026 with momentum. “A shrinking inventory base, continued flight to quality, major private investment, and a diversified innovation economy all point in the same direction: Orange County’s office market has stabilized and is beginning its next cycle,” writes Drzyzga.
For a deeper dive into the individual office markets, visit the Voit Market Reports page. To learn more about how we can assist you with your commercial real estate needs, contact one of Voit Real Estate Services’ trusted commercial real estate advisors.