Staff Reports

Leasing activity in the Western U.S. office market is showing signs of gradual improvement heading into 2026, though the recovery remains uneven across markets and property types, according to a new forecast from the commercial real estate firm Kidder Mathews.

The firm's 2026 Western U.S. office market forecast said leasing volumes have strengthened compared with the past several years as tenant demand stabilizes and some major markets begin to regain momentum. While office vacancy rates remain high by historical standards, the pace of increase has slowed significantly, and many markets have begun to post modest declines.

New office construction has fallen to its lowest level in decades, helping ease long-standing supply pressures. At the same time, older and obsolete office buildings are increasingly being removed from inventory or converted to other uses, a trend that is helping restore balance between supply and demand, the report found.

Tenant demand continues to concentrate in premium office space, widening the gap between top-tier buildings and the rest of the market, according to Kidder Mathews.

Employers are prioritizing newer, well-located properties with modern amenities that support collaboration, company culture and employee retention, particularly as in-office attendance rises on peak days.

With little new construction coming online, high-quality buildings in prime locations are leasing faster in many markets, contributing to quicker rent stabilization and intensifying competition among tenants, the report said. As these properties approach higher occupancy levels, demand is beginning to spill over into well-located buildings that have undergone significant upgrades.

Vacancy and sublease availability have also begun to trend downward after years of increases. Kidder Mathews said several Western U.S. markets have recorded consecutive quarters of positive net absorption, signaling a potential turning point for the sector.

Sublease space, a key indicator of tenant confidence, has declined meaningfully. On the West Coast, sublease space accounted for 10.4% of total available office space at the end of 2025, down from a peak of 15.3% in 2023. While still well above the pre-pandemic 10-year average of 4.7%, the reduction is viewed as an early sign of a broader recovery.

Looking ahead to 2026, Kidder Mathews expects leasing volumes to surpass 2025 levels as companies finalize long-term workplace strategies and capital markets gradually improve.

Rent growth is expected to be concentrated in premium assets, while older buildings requiring significant investment may face continued challenges or pressure to reposition, according to the report.

The brokerage said limited construction, selective conversions and easing sublease supply should help move the office market toward a more balanced footing, even as refinancing pressures continue to weigh on weaker properties.