Why Office Rents Are Rising Again — Even With Vacancy Still High

Office vacancy remains historically elevated. And yet, for the buildings tenants actually want, rents are climbing — in some markets, sharply. This isn’t a contradiction. It’s a market splitting in two.

A National Average That Hides the Real Story

Looking at the national numbers alone, office rent growth has been modest. The average U.S. office asking rent rose 2.2% year-over-year in Q1 2026, reaching $37.21 per square foot — the fastest pace of growth in six years and above the trailing 30-year average. Taking rents, what tenants are actually agreeing to pay, rose even faster, up 2.7% to $33.35.

That’s real momentum. But it understates what’s happening at the top of the market by a wide margin.

The national average blends together two very different stories: a small, increasingly scarce pool of premium space where demand is intense, and a much larger pool of commodity buildings still struggling to hold tenants. Treating the office market as one market misses where the actual leasing activity — and the actual rent growth — is concentrated.

The Widening Gap Between Top-Tier and Everything Else

The divide between high-quality and lower-quality office buildings has been widening for several years, and the data shows no sign of it closing.

Base rents for Class A+/A buildings have risen consistently since 2023, while Class B/C base rents have fallen over the same period. The gap is even more pronounced on an effective rent basis — once concessions are factored in — where top-tier buildings have meaningfully outperformed lower-tier product.

This isn’t simply about prestige addresses commanding a premium. It reflects a genuine supply constraint. New construction has slowed dramatically, and the buildings being delivered or fully renovated to a high standard represent a shrinking share of total office inventory. Tenants chasing quality are competing for a pool of space that isn’t growing — while tenants willing to accept commodity space have an abundance of options and very little urgency to pay up.

Prime Rents Are Accelerating in Specific Markets

The clearest evidence of this divergence shows up at the market level, where prime rent growth has become highly uneven.

In several major U.S. markets, prime office rents have posted double-digit year-over-year growth — driven by extremely tight availability of top-tier space and little to no new construction in the pipeline. Century City in Los Angeles is among the standout performers nationally, alongside markets like Dallas and Washington, D.C.

This pattern extends beyond major gateway markets. In highly amenitized, transit-oriented submarkets, asking rents have begun increasing at or above inflation even in non-trophy Class A buildings — a signal that the flight-to-quality trend is broadening beyond only the most iconic addresses.

Why Concessions Are Starting to Ease

For years, landlords leaned heavily on concessions, free rent, and tenant improvement allowances to compete for tenants. Those packages grew substantially above pre-pandemic norms, and they remain elevated in most markets today.

But the trend has begun to shift for the highest-quality buildings. Average tenant improvement allowances for top-tier assets declined in the most recent full-year data, even as those for lower-tier buildings fell further still. The pattern reflects a basic supply-and-demand dynamic: landlords of competitive, well-located buildings have less need to compete on price when demand is concentrated and supply is constrained.

For occupiers, this has a practical implication that’s easy to miss. A building owner’s financial capacity to fund a build-out has become a genuine factor in leasing decisions — not just a backstop consideration. Tenants are increasingly cautious about signing with landlords who may lack the capital to deliver on a generous TI package, which further narrows the pool of buildings perceived as truly competitive.

The Rise of Spec Suites

One of the more notable shifts in landlord strategy has been the move toward pre-built, spec-finished suites — smaller, fully finished spaces ready for occupancy without a traditional build-out process.

This approach has found a receptive audience among fast-growing, well-capitalized tenants, including venture-backed AI and tech companies that need to move quickly and don’t want to manage a months-long construction timeline. These spaces typically command a premium face rent compared to a standard shell lease, but they offer tenants speed and certainty that a from-scratch build-out can’t match.

For landlords, the strategy is a bet: that demand for turnkey space will remain steady enough to recoup the upfront capital investment through faster, more frequent leasing cycles, rather than holding out for a single long-term tenant willing to fund their own build-out.

What a Thin Construction Pipeline Means Going Forward

The structural driver underneath all of this is simple: very little new office space is being built.

Construction activity has slowed to levels well below historical averages, and most forecasts don’t anticipate a meaningful rebound in new supply over the next several years. That scarcity is the foundation for continued rent growth at the top of the market — there’s simply no meaningful wave of new, competitive product coming to absorb demand or relieve pricing pressure on the buildings tenants actually want.

For landlords of high-quality, well-located, well-capitalized buildings, this trend should continue to support rent growth and a gradual easing of concession packages. For landlords of older, undercapitalized, or poorly located buildings, the pressure runs the other direction — they’re increasingly competing not just against each other, but against a growing pool of subleased and vacant space with no clear catalyst for improvement.

What This Means for Tenants

For companies evaluating office space right now, the practical takeaway is this: the broad “tenant’s market” narrative is no longer accurate everywhere. It depends entirely on what kind of space you’re targeting.

If your priority is a top-tier building in a strong location, expect less negotiating leverage than the headline vacancy numbers suggest — and expect that leverage to keep shrinking as construction stays muted. If you’re willing to consider Class B or C space, or buildings outside the most in-demand submarkets, meaningful leverage and competitive concessions remain widely available.

Understanding which side of that divide your target buildings fall on — before you start touring — changes how you negotiate from the very first conversation.

Frequently Asked Questions

Why are office rents rising if vacancy is still high?
Office vacancy and rent growth are diverging because demand is concentrated in a shrinking pool of high-quality, well-located buildings, while a much larger pool of lower-quality space continues to carry most of the vacancy. National averages blend these two markets together, masking the real trend.

What is a spec suite in commercial real estate?
A spec suite is a smaller office space that a landlord builds out in advance — fully finished and ready for occupancy — rather than waiting for a tenant to commission a custom build-out. Spec suites typically command a higher face rent but offer tenants faster move-in timelines.

Are office concessions still high in 2026?
Concession packages, including free rent and tenant improvement allowances, remain elevated relative to pre-pandemic norms in most markets. However, for top-tier buildings specifically, concessions have begun to ease as landlords face less competitive pressure to attract tenants.

Why does a landlord’s financial strength matter when leasing office space?
A landlord’s ability to fund a tenant improvement build-out has become an important factor in leasing decisions. Tenants are increasingly cautious about signing with landlords who may lack the capital to complete a generous TI package, which can delay move-in or create disputes mid-build-out.