Callahan Capital Partners - Office Real Estate Digest

Here's a glimpse into what we are reading to shape our view on the evolving office market.

The office doom loop has officially reversed… for high quality assets. Badge swipes at prime office buildings are regularly within 10% of prepandemic norms across 10 major U.S. cities, office space nationally is shrinking as old buildings are demolished or converted, and tenants are absorbing more space than at any point since 2020, all while just 19.7 million square feet remains under construction nationally, near the lowest on record. Manhattan is leading the charge, but it is not alone. San Francisco has been on fire, driven by AI tenant demand that has made the Bay Area's recovery one of the sharpest in the country. The supply constraint is national. There is virtually no new product coming online in the next 24 months to meet what is already healthy demand at the top of the market in any major city.

In Manhattan specifically, prime rents have climbed 6% above prepandemic levels to roughly $95 per square foot, with select trophy buildings clearing $300 per square foot. Of the 7.7 million square feet of prime space under construction, over 80% is already leased before the doors open. Midtown West has no direct vacancies in top-market buildings. SL Green is reporting net rent growth on trophy buildings just north of 15%, with multiple competing proposals now becoming routine when new space hits the market. Read more from Barron’s here.

CBRE's September 2026 research report on AI's impact on office demand arrives at a conclusion that cuts against the prevailing anxiety: AI is not the existential threat to office that most people assume, and in key ways it is a tailwind. Only 5% of the office-using workforce is considered highly vulnerable to AI displacement. That 5% skews heavily toward task-based, process-driven roles that are already disproportionately remote. The work AI is eliminating has largely left the building. Meanwhile, the roles AI creates and amplifies (complex, judgment-intensive, collaborative work) are precisely the functions that require in-person environments to perform well. The Jevons Paradox applies here in a way that gets overlooked in most AI-and-office conversations: as AI makes services cheaper and faster to deliver, aggregate demand for those services rises, generating more business formation and more jobs, not fewer. As evidence, U.S. weekly business applications are already surging. Based on this reasoning, CBRE's baseline forecast reflects all of this: overall U.S. office vacancy is projected to decline from 18.3% today to 14.5% by 2031.

AI is already starting to drive demand in a big way. Tech companies accounted for 21% of total U.S. office leasing in the first half of 2026, with nearly two-thirds of that activity concentrated in the Bay Area and Manhattan. The companies that best understand AI and stand to be most transformed by it are expanding their real estate footprints, not shrinking them. Read more from CBRE and download the full report here

The headline office recovery numbers look better than the underlying reality for large-asset owners. Office deal counts have recovered to near pre-pandemic levels, but that recovery has been driven almost entirely by smaller transactions. Buildings over 500,000 square feet? Median pricing is down 36% over the same period. These are not distressed, vacant assets being cleared at fire-sale prices. Many are well-leased, operationally sound properties whose capital market values have been reset given there are fewer investors at this time writing large checks for office assets. For investors underwriting large-format office today, this is the most important data point in the market: operating performance (for high quality assets) has recovered, but pricing has not, and that gap between income and value is exactly where the return lives for buyers. Read more here.