By
Franco Faraudo
– Editor, Propmodo
May. 6, 2026
The office market has never been easy to read, but the current moment is particularly confusing for anyone trying to form a view. Headline vacancy rates remain elevated. Economic uncertainty, driven by trade policy volatility, and a softening labor market has kept corporate decision-makers cautious about long-term real estate commitments. And yet, underneath those surface-level concerns, a set of structural forces are converging that look less like a market in distress and more like one quietly setting the stage for a significant tightening. The story of the office market right now is not really one story at all.
Office demand and job creation have always moved together, and the jobs data heading into mid-2026 is sending mixed signals. Private sector employers added 109,000 jobs in April, above economists’ expectations of 99,000, with April gains representing the strongest month since January 2025. That is an encouraging data point, but it sits alongside a revised March figure of just 62,000 jobs and a broader trend of employers staying cautious. Businesses have remained hesitant to make sweeping changes to either grow or shrink their payrolls when they’re unsure what the next six months might hold, a dynamic that has kept both layoff and hiring rates low. Tariff-related uncertainty has frozen decision-making in manufacturing and other trade-sensitive sectors. Companies that aren’t confident about their headcount trajectory aren’t signing long-term leases.
What the aggregate employment picture obscures is that the office market has become so differentiated by quality tier that treating it as a single market is increasingly misleading. “There is a perception that all office is struggling,” said Bruce Miller, Senior Managing Director and co-head of National Office Investment Sales at JLL. “That could not be further from the truth. Tier 1 and Tier 2 buildings are setting records in some places and have really low vacancy and strong absorption.”
JLL’s tier classification system offers a more granular lens than the traditional Class A, B, and C framework that has long been the industry standard. Where Class A broadly captures any building considered above average for its market, JLL’s Tier 1 designation is reserved for the newest, most amenity-rich, most sustainably certified trophy assets, typically built after 2015, while Tier 2 covers high-quality second-generation buildings constructed between roughly 2010 and 2014 that still command strong fundamentals. Tier 3 and below captures the older, functionally obsolete stock that has accumulated most of the sector’s distress. The distinction matters because the performance gap between those tiers has rarely been wider. As Tier 1 and trophy stock becomes more scarce, Tier 2 rental rates have been continuing to rise, growing 2.1% in the past year as tenants unable to access the most coveted buildings bid up the next best option.
That scarcity is not happening by accident. The negative sentiment around office, combined with elevated interest rates and the difficulty of financing speculative development, has produced what amounts to a near-complete shutdown of new supply. “Not only is there a meaningful flight to quality,” Miller said, “it is being accentuated by a near-complete shutoff of new supply.” The numbers bear that out starkly. Construction completions have steadily declined from 51.2 million square feet in 2018 to 25 million last year and an anticipated 12.7 million this year.
Looking further out, the development pipeline collapses even further, with projections pointing to roughly 5 million square feet of new supply arriving in 2027, a figure expected to remain at historically low levels for the rest of the decade. In a market that has historically absorbed between 40 and 50 million square feet of new supply annually, that is an extraordinary contraction. Groundbreakings are at record lows in the U.S., with three quarters of the remaining pipeline already pre-leased. “What happens as a result of that,” Miller said, “is that you are not adding the new, high-quality buildings to the market, so it drives rent up for those types of offices.” The math is straightforward: if the supply of the best space stops growing while demand for it continues to consolidate toward the top of the market, rents for Tier 1 and Tier 2 assets have only one direction to go.
On the other side of the supply ledger, conversions and demolitions are removing office inventory at a pace that has no precedent in recent history. More office space will be removed from the U.S. market this year than added to it for the first time since at least 2018, with 23.3 million square feet of space on track for conversion or demolition against just 12.7 million square feet of new supply. “We are seeing a record level of existing office buildings get converted or torn down,” Miller said. “That has taken around 150 million square feet over the last five years, and that rate is accelerating.” The U.S. office conversion pipeline reached 81 million square feet of planned and underway projects across 44 markets as of May 2025, up from 71 million square feet just six months prior. The office buildings most likely to be converted or demolished are precisely the ones that would otherwise drag vacancy statistics without ever competing for the tenants pursuing quality space. Their removal cleans up the market’s fundamentals in ways that take time to appear in the headline numbers but that investors and operators are already beginning to price in.
What the office market’s history suggests is that it has always found a way to absorb major disruptions to the way work gets done. The shift to open-plan layouts in the 1990s was supposed to render traditional private-office buildings obsolete. The rise of remote work in the 2010s was supposed to hollow out urban cores. Each time, the market adapted, and the buildings that could adapt with it endured while the ones that couldn’t were repurposed or demolished.
The current moment, with its flight to quality, its collapsing development pipeline, and its record pace of conversion activity, looks less like a market in structural decline and more like one undergoing a painful but necessary reset. The buildings being removed aren’t coming back. The new supply that would ordinarily replenish the top of the market isn’t being built. And demand, while still finding its footing in an uncertain economy, is increasingly concentrating in exactly the assets that are becoming harder to find. That combination doesn’t resolve overnight. But for investors and operators with the patience to look past the headline vacancy rate, it is starting to look a lot like opportunity.
Courtesy of Propmodo
