The headline recovery in office leasing activity is real, but the composition of that activity suggests the market is structurally different from what it was before the pandemic — and possibly in ways that won’t reverse.
According to Phil Mobley, National Director of Office Analytics at CoStar Group, office leasing in the first quarter of 2026 reached its strongest level since 2018. Mobley argues that investors treating this as a straightforward return to prior conditions are misreading the data. Average lease sizes are approximately 15% smaller than pre-pandemic levels. This compression reflects multiple reinforcing structural forces, not a temporary lag in recovery.
Forces Behind Lease Compression
Mobley identifies several overlapping forces behind the compression. Companies are hiring more cautiously than historical norms, and many are still recalibrating their real estate footprints in response to changed workplace policies. A prolonged slowdown in new construction has eliminated the large, contiguous blocks of premium space that major occupiers have traditionally required when relocating.
That last factor is creating a paradox. When large tenants approach lease expiration and cannot find suitable replacement space, many choose to stay put rather than downsize into something inferior. “If you can’t find the perfect place to move, then if you’re one of those large occupiers, you may just choose to stay where you are,” Mobley says.
Large lease transactions are becoming rarer — not only because demand is softer, but because the supply conditions that would enable them no longer exist.
Opportunistic Leasing Inflates Volume
Beyond the structural compression, a significant portion of current leasing activity appears driven by tenants acting ahead of their actual space needs — locking in desirable locations before the supply window closes further. This pattern is most visible among venture-backed technology and AI companies, which historically lease space ahead of hiring rather than in response to it.
These companies may not need the space today, Mobley says, but their expected growth and shrinking premium supply are driving up transaction volume. This forward-looking behavior inflates leasing numbers in ways that may not accurately reflect underlying occupier demand.
For investors assessing the durability of the recovery, this distinction matters. Leasing activity driven by opportunistic space acquisition is inherently time-limited — once the best available space is absorbed, the pipeline of motivated tenants shrinks. “I’m not sure how much longer it can last, because we’re going to start running out of that quality space for tenants to move into,” Mobley says.
Smaller Leases, Shorter Terms
The composition of leasing activity carries direct consequences for how office assets should be underwritten. Buildings historically valued for attracting large, long-term anchor tenants now compete in a market where those tenants are either staying put or unable to find suitable space. The tenant pool that is actively leasing skews smaller, and the lease terms that accompany smaller tenants tend to be shorter.
One landlord response has been the growth of pre-built spec suites. Rather than waiting for large tenants to commit before investing in a buildout, some landlords are finishing smaller spaces, typically 5,000 to 10,000 square feet, and marketing them as turnkey options for smaller occupiers. Mobley notes that more landlords have been willing to invest in these pre-built spaces as smaller tenants have become the more active segment of the market.
The trade-off is significant. These leases typically run three to seven years rather than ten to fifteen, requiring landlords to underwrite multiple lease cycles to recoup their capital investment. This is a bet on renewal probability and market durability that would have been unusual in prior cycles.
Reading the Recovery Correctly
The current leasing recovery arrives as many investors seek confirmation that office fundamentals have stabilized. Rising transaction volume offers that reassurance on the surface. The details, however, tell a more complicated story.
Lease sizes remain compressed. Much of the activity is anticipatory rather than driven by immediate need. The supply shortage pushing tenants to act now is the same constraint that could slow momentum once the best available space is absorbed. Mobley’s assessment is measured: the recovery is real, but it carries nuance that aggregate leasing statistics don’t capture.
For investors and owners positioning for the next phase of the cycle, the most important distinction may be between a volume recovery and a structural one. Whether the market can sustain its current momentum as the supply of desirable available space continues to tighten remains, in Mobley’s view, an open question. The numbers say the office market is healing. The composition of those numbers suggests the market that emerges will look meaningfully different from the one that existed before.
