CoStar Upgrades U.S. Office Vacancy and Rent Growth Forecast

CoStar expects U.S. office vacancy and rent growth to improve through 2027. It lowered its year-end national office vacancy forecast to 13.6% from 13.7% and projects net absorption of 20 million square feet in 2026 and 9 million square feet in 2027.

Analysis

The key investable signal is not a broad office rebound but whether leasing gains are concentrated in newer, well-located buildings. If tenants continue shifting into quality space, aggregate absorption can improve while older assets still face rising concessions, capital needs, and refinancing pressure. That creates a likely split between office landlords rather than a clean sector-wide rerating.

For public markets, BXP may offer relatively direct exposure to premium office demand; VNO and SLG are more exposed to the difficult Manhattan recovery. A relative-value setup is plausible, but the supplied forecast alone does not establish a durable earnings inflection or justify a directional office trade. CoStar (CSGP) may benefit indirectly if better leasing conditions support transaction and marketplace activity, but this forecast is not evidence of a material near-term revenue catalyst.

Near term, the revision is modest and should be treated as a sentiment input, not a fundamental reset. Over 1–3 months, watch landlord leasing commentary, concessions, tenant retention, and office-loan extensions or restructurings. Over 6–18 months, sustained absorption could improve occupancy and asset values, but refinancing costs and obsolete inventory may absorb much of that benefit. The contrarian risk is that a national improvement masks a widening quality divide. The thesis weakens if leasing gains fail to translate into effective rents or if office credit stress accelerates.

Key Decisions for Investors

• No broad office-sector trade on this forecast alone. Track BXP versus VNO and SLG as a relative-value watchlist; consider a long-quality/short-legacy expression only after confirming leasing spreads, concessions, and balance-sheet runway from filings and earnings calls.
• Treat CSGP as an indirect beneficiary, not a forecast-driven earnings trade. Reassess only if marketplace activity, bookings, or management guidance independently confirms improving commercial real-estate demand.
• Over the next 1–3 months, monitor office REIT leasing disclosures and loan maturity or extension data. A rise in effective rents alongside occupancy gains would strengthen the recovery thesis; occupancy gains dependent on heavy concessions would falsify it.
• Avoid extrapolating the national outlook to all buildings or markets. A renewed increase in office-loan distress, or worsening leasing in major urban markets, would favor staying underweight legacy office exposure despite improving aggregate forecasts.