Is 2026 the Year of the Zombie Office Wrecking Ball?
2026 marks a decisive turning point for the US office market. After five years of “wait-and-see” hesitation driven by the pandemic and subsequent economic uncertainty, the market has entered a phase of stabilization.
Prior to 2025, the prevailing narrative was simple: we would take all the empty “zombie offices” haunting our business districts and magically transform them into apartments. It was a noble idea, mostly presented by people who didn’t know what they were talking about.
Then, the math hit reality.
We quickly learned that the vast majority of existing office stock is physically unsuitable for conversion. The floor plates are too deep, creating windowless interiors, and the existing plumbing is woefully insufficient. When you run the numbers, the engineering costs to fix these issues become prohibitive. Consequently, we witnessed a wave of cancelled conversion projects that looked fantastic initially on paper but failed the moment they met an engineer.
While some conversions have found success in “boutique” historic buildings which has helped in specific markets, the hard truth for the broader market is this: The “fix” for the office crisis isn’t residential conversion. It is the demolition of obsolete buildings.
The Great Divide: Winners and Losers
The market has fundamentally split. While many pundits use the word “bifurcated,” the reality is actually much starker.
The Winners: Flight to Quality
The clear winner in 2025 was the trophy Class A+ office tower. Rents climbed significantly in the best buildings as tenants scrambled for quality, causing options to dwindle. This divergence is driven by the occupier’s need to “earn the commute.” as the office must offer an experience superior to the home environment to justify the time and cost of commuting.
Consequently, demand has concentrated intensely on the top 10-15% of the building stock.
The Losers: The Generic Glass Box
What becomes of the generic glass boxes built in the 1980s and 90s?
For years, lenders and landlords played a dangerous game of “Survive ‘til ‘25,” extending loans in the hopes that interest rates would plummet and save the day. That gamble failed. The Federal Reserve’s rate cuts and the office markets recovery have been too slow to rescue these vintage loans on Class B/C office assets.
Owners of legacy assets are price-takers forced to compete on aggressive concessions that often make no financial sense or they are not even capable of offering.
We are now watching owners hand back the keys and seeing distressed sales at heavily discounted values. These assets are the casualties of a redefined market.
The “Hybrid Truce”
The Return-to-Office (RTO) wars have largely ended in a “Hybrid Truce.”
While some organizations are mandating a strict five-day return, most have settled into a rigid “3-Day Anchor” model (Tuesday–Thursday). Looking forward, the current state of the labor market and the rapid integration of AI tools in the workplace may shift attitudes toward in-person work, particularly among younger workers who realize that proximity to mentorship is their best hedge against automation.
The fear of a deep recession has largely abated, replaced by a “soft landing” economic scenario that has given corporate decision-makers the confidence to execute long-term real estate strategies.
Occupier strategy has shifted from defensive contraction to strategic optimization. The era of universal downsizing is waning; Seventy percent of real estate leaders at large companies said their 2026 strategy includes adding more space, versus 56% in 2024.
Because new construction starts flatlined in 2024-2025, there will be very little new prime inventory delivering in 2-3 years.
As a result, my prediction for 2026 is that we will see traction in older, newly amenitized and renovated Class A and B+ buildings. Tenants who are priced out of the trophies will look for the next best thing: character and amenities in established locations. In fact, we are already seeing recent transactions that support this premise.
The Verdict: Act Now or Exit
The office market is showing real signs of recovery, but we must accept that a percentage of the office stock in the United States will either never be occupied again or capable of competing in the marketplace.
If you hold generic, middle-market office space, the “wait and see” strategy of 2025 has proven fatal. This is not a standard cycle recovery where a rising tide lifts all boats. The office market has been permanently redefined.
The time is now. You have three choices: invest the capital to upgrade and to compete for the “Tuesday–Thursday” crowd, repurpose your land to another use which involves scraping the improvements or take your medicine and exit immediately. There is no fourth option.
Frequently Asked Questions (FAQs)
Is the U.S. office market actually recovering in 2026?
Yes, but the recovery is highly uneven. Demand has stabilized and is growing for top-tier and well-located office buildings, while older, generic office properties continue to struggle. This is not a broad-based rebound but a selective recovery driven by quality, amenities, and location.
Why are most office-to-residential conversions failing?
Most office buildings were not designed to be converted into housing. Deep floor plates, limited natural light, insufficient plumbing, and high engineering costs make conversions financially unviable in most cases. Only a small number of boutique or historic buildings can be successfully converted.
