Office Market Recovery 2026: CRE Trends, Leasing Surge & Investment Opportunities with Phil Mobley

In this episode of America's Commercial Real Estate Show, host Michael Bull welcomes Phil Mobley, CoStar's National Office Analyst, to discuss the emerging recovery in the U.S. office market heading into 2026. Mobley explains that while overall office vacancy remains elevated, the sector is showing signs of stabilization and even slight decline—driven not by strong absorption but by a significant reduction in supply due to construction slowdowns and increased demolition and repurposing of office space. This has created a 'musical chairs' market where high-quality, competitive buildings attract tenants and see rising rents and values, while lower-quality properties continue to deteriorate. Despite limited overall demand growth, leasing activity in Q1 2026 reached pre-pandemic levels, signaling renewed investor confidence in premium office assets. Mobley also addresses the impact of AI, noting it may modestly slow office employment growth but is unlikely to cause mass displacement in the near term. Long-term interest rates are expected to remain stable around 4%, reducing the incentive to delay investment decisions. The episode concludes with a call for strategic risk-taking and adaptation in the office market, particularly in high-growth markets and well-located buildings. Key takeaways include: 1) Office supply is shrinking due to demolition and repurposing, not new construction, creating scarcity in high-quality assets; 2) The market is bifurcating—top-tier buildings are gaining occupancy and value, while lower-tier buildings are losing ground; 3) Leasing momentum is strong, but occupancy gains are lagging, indicating tenant churn rather than broad demand growth; 4) AI is a moderate drag on office employment but not a near-term threat to jobs; 5) Stable long-term rates are encouraging investment activity; 6) Investors should focus on adaptive reuse and capital improvements to compete; 7) Economic development and regional growth will be critical drivers; 8) The 'musical chairs' analogy underscores the winner-takes-most dynamic in today’s office market.