CoStar revises US office market forecast with improved outlook

CoStar Group (NASDAQ: CSGP) has upgraded its projections for the US office market through 2026, citing improved third-quarter performance that exceeded expectations.

The real estate analytics company now forecasts 10 million square feet of positive absorption over the next four quarters, reversing its previous projection of negative 4 million square feet of absorption. The revision follows what CoStar described as the strongest quarter of occupancy gains since 2019.

Rent growth projections also improved, with CoStar expecting 1% growth by late 2026 and 1.5% by mid-2027. The previous forecast indicated rent growth would remain below 1% well into 2027.

"Many occupiers, anticipating higher office attendance, have recently committed to additional space despite tepid hiring," said Phil Mobley, national director of office analytics at CoStar Group. "This behavior is expected to boost absorption for several more quarters."

The upgraded forecast comes despite stagnant job growth in traditional knowledge industries. CoStar attributes the improved outlook to companies securing additional office space in anticipation of increased employee attendance.

Long-term projections remain challenging, with vacancy rates expected to stay above 13.5% through the end of the decade. This represents a full percentage point above the peak following the Great Recession, reflecting structurally lower per-employee space needs compared to pre-2020 levels.

CoStar noted potential downside risks including persistent inflation, volatile trade policy, and weaker-than-initially-reported employment data in key knowledge industries. The company highlighted concerns about technology-enabled efficiency potentially reducing payrolls further.

The revised projections are based on data from CoStar's commercial real estate platform and reflect changing office occupancy patterns following the pandemic.

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