August 11, 2026
Commercial Real Estate Direct Staff Report
Office REITs reported solid leasing numbers during the second quarter, allowing most to increase the average rents they generate.
Quarterly data generally fluctuate from period to period and is often dependent on lease renewal schedules. Still, nearly all of the 12 office REITs that collectively own 291.79 million sf and already have reported earnings recorded increases in occupancy. And nearly one-third of those reporting higher rents posted double-digit increases.
Alexandria Real Estate Equities and Brandywine Realty Trust were the only REITs that saw their average rents decline from a year ago.
Alexandria owns life-sciences properties, which have been oversupplied. Rents it generates declined in the second quarter by more than 40% from a year ago.
The Pasadena, Calif., company has been reliant on the biotechnology sector, which remains in a slump. It’s now pursuing tenants in other fields, including the medical devices, agriculture-technology, and tech sectors. Meanwhile, the company’s leasing activity hasn’t been able to keep up with the volume of space that has expired. As a result, occupancy at its portfolio declined to 86.9% from 90.8% a year ago.
Brandywine, which owns office properties concentrated in suburban markets, also reported a decline in cash rents. But on an accrual basis, rents increased by 1.5%. That’s due to the company providing generous concessions in the form of periods of free rent and tenant-improvement allowances.
The Philadelphia REIT has a 4 million-sf exposure to Austin, Texas, accounting for more than one-third of its total portfolio. The Austin office market is still dealing with what until recently was an oversupply of space. As a result, market-wide occupancy at the end of last quarter was 21.9%, according to Newmark. While that was a 170-basis-point improvement from a year earlier, conditions remain soft.
REITs that own the best buildings in their respective markets posted solid numbers, furthering the narrative that class-A space is being absorbed, while lesser space continues to struggle. Also helping office owners: construction has collapsed across the country, with the under-construction pipeline down 87% from its 2020 peak. So, even modest demand growth is translating into fast-falling vacancy for good space.
New York and San Francisco are markets that have improved meaningfully over the past year, but for different reasons. In New York, the overall availability rate declined by 310 bps from last year to 14.4%, according to CBRE. Net absorption—the leasing of previously vacant space—was 3.02 million sf during the latest quarter. Average asking rent climbed 4% to $80.17/sf. That’s a market average.
Vornado Realty Trust, whose portfolio of 26.35 million sf is comprised largely of some of Manhattan’s top buildings, reported a $107.24/sf average rent for the latest quarter, up nearly 6% from a year ago.
“Tenants are expanding all over the city,” said Steven Roth, the company’s chief executive, who spoke on a recent call with analysts. “Available space and sublease space continues to evaporate and office-to-residential conversions continue to remove square footage from the office inventory.” As a result, “there is a serious shortage of large block availability.”
Roth noted that roughly 180 million sf of Manhattan’s 413.6 million-sf inventory would classify as class-A or better. That portion of the market has a 6.2% vacancy rate, he said, while the entire market has a vacancy rate that’s more than 10 percentage points higher. He added that demand in New York is being driven by tenants across a number of industries. “This isn’t one industry having a moment.”
The dearth of planned construction is driven by the fact that rents would need to be more than $300/sf to justify the costs involved in building anew. Manhattan, he said, was “clearly a landlord’s market.” That’s resulted in a broad-based recovery, and ever-escalating rents.
San Francisco also has improved, as 3.3 million sf was leased during the latest quarter, according to Cushman & Wakefield, up about 30% from a year earlier. But its recovery has been driven disproportionately by companies in the artificial intelligence sector. The city’s overall vacancy rate was 30.1% in the second quarter, down from 33.8% a year ago.
Overall demand for space is driven by a few factors, but key is company formation. When companies are being started, the need for space typically increases. In 2019, before the Covid lockdowns, roughly 3.5 million businesses were started in the United States, according to the U.S. Census Bureau. That tailed off sharply during the years following the shutdowns. While businesses were created, many were remote operations—businesses that folks often ran from their homes.
Business creation recovered sharply in 2023, reaching record levels that were topped just last year when an estimated 5.67 million businesses were started. In 2026, the economy is on pace to top that by 17% as some 3.08 million business were created through June.
Much of the office sector remains challenged, but conditions are improving substantially. And it’s not just happening in the major markets.
Accesso Partners, a Hallandale Beach, Fla., investment manager, has a portfolio of more than 12 million sf of office space in six markets, including suburban Chicago, Philadelphia, Charlotte, N.C., and Raleigh, N.C. The company recorded more than 922,589 sf of leases so far this year. In contrast, for all of last year, it leased 1.15 million sf, and in 2024, it leased 950,413 sf.
The demand it’s getting is broad-based, coming from both existing tenants looking to expand and new tenants.
“It feels like good, positive momentum across all business types, not just law firms or tech firms,” explained Deb Kolar, the company’s chief asset officer.
“Companies continue to right-size,” she conceded. But “the good news is that some companies are expanding.” And it’s not just large companies that are looking for more space. Small companies are as well.
“We’ve had more talks with tenants interested in expanding,” Kolar said. We’re “seeing activity in both trophy and lesser buildings.” But buildings need to be improved to draw tenants; many want amenities such as fitness centers and food options.
“You don’t have to be a trophy to check the boxes” that prospective tenants might need in order to sign a lease.