In a recent interview on the Market Insider podcast with host Siyamak Khorrami, Senior Executive Managing Director and co-founder of Hughes Marino, David Marino, laid out a stark assessment of where commercial real estate stands today: this is the worst environment he’s seen in more than 30 years.
According to David, commercial real estate in 2026 looks nothing like it did six years ago, and most of what you hear about it is being carefully managed. Vacancy figures are understated. Rents are propped up by concessions that don’t make the headline. And the industrial market, which generated far less media attention than office during the post-Covid unwind, is actually worse by several key measures.
Drawing on what his team is seeing on the ground across the country, in conversations with tenants, landlords and lenders, David argues that for tenants who understand the moment, this is one of the most powerful leverage windows in a generation. Watch the full conversation below, or keep reading for a recap of David’s perspective on what tenants need to know right now.
The Office Market Has Hit Bottom, But Not Recovering Anytime Soon
Six-plus years after Covid, the office market has fundamentally reset. Roughly 85%of U.S. companies have had their leases expire since 2020, and the vast majority have downsized. A company that once occupied 40,000 square feet may now be in 20,000. Hybrid and remote work patterns have calcified into permanent operating models, and corporate America has largely completed its rightsizing.
The result is a national office availability rate of 20%-30% across most major markets, a level that Marino describes not as a transitional dip, but as a durable floor.
The behavior is basically set now. Corporate America has really settled into a new normal around office space. The horses are out of the barn and they’re never coming back.
Marino points to the 1997–1998 period as a historical parallel: a market that hit bottom and simply stayed there for years before recovering. His current expectation is that most U.S. office markets will remain in this extended equilibrium for three to five years, or potentially longer.
For tenants, that timeline is a critical context. This is not a market in transition; it’s a market that has settled. The favorable conditions available to tenants today are not a closing window. They are the prevailing conditions, and they will be for the foreseeable future.
Availability vs. Vacancy: Why the Numbers You’re Seeing Are Misleading
One of the most consequential distinctions in today’s market is rarely explained to the people making lease decisions: the difference between vacancy and availability.
Vacancy measures space that is physically empty. Availability includes all space being actively marketed, vacant and otherwise, including sublease space where a tenant is still paying rent but has listed their space for others to take over. The commercial real estate brokerage industry predominantly reports vacancy. Availability is the honest number.
Today, there are 170 million square feet of office sublease space on the market across the United States. A building occupied by three employees but listed for sublease on 100,000 square feet registers as zero vacancy under standard reporting.
There’s a lot of lying with statistics going on in our industry. People sort of manipulate the data to create a favorable story and a favorable narrative as to why values should be higher than they might otherwise be.
For tenants making relocation or renewal decisions, this distinction matters significantly. The true supply competing for occupiers in the office tenant representation market is far larger than headline figures suggest, and that means tenant leverage is far stronger than it appears.
What Landlords Are Doing to Hide the Market’s True Weakness
Rather than cutting face rents, the headline rate that appears in leases and gets reported to the market. Landlords are loading transactions with concessions to maintain the appearance of stable pricing. This strategy protects reported asset values and lender covenants, but it obscures the true cost basis of lease deals.
Marino recently represented an engineering firm leasing 14,000 square feet. The landlord, who had just purchased the building and was closing escrow, offered an eight-year lease with a full year of free rent in 2027. The landlord also paid for all tenant improvements and provided a cash moving allowance. On paper, they captured their $3-per-square-foot asking rate. In practice, the economics of that deal look nothing like the face rate.
This is the defining dynamic of the current office market: free rent packages, outsized tenant improvement allowances and moving allowances are masking how far effective rents have actually declined. Tenants who don’t know how to ask for these concessions, or who negotiate without a tenant-only advocate, are leaving significant value on the table.
How Lenders Are Getting Creative to Avoid a Foreclosure Wave
Hundreds of office property foreclosures have already occurred across the country, concentrated in the last three years. Downtown San Diego alone has seen approximately 11 high-rise office buildings go through foreclosure or forced sale, including buildings from the Irvine Company’s downtown portfolio. Similar patterns have unfolded in downtown Los Angeles, San Francisco and New York.
But lenders, who have no desire to become landlords, have been quietly employing creative restructuring tools to keep properties out of formal default. One approach Marino describes is loan bifurcation: splitting a non-performing $100 million loan into a $70 million “A” loan that remains performing, and a $30 million “B” loan parked on the lender’s balance sheet at zero interest. The owner contributes fresh equity to bring the debt service to a manageable level, no foreclosure is filed and the lender avoids taking a loss that would force a write-down.
Nobody’s writing about this kind of stuff. But a lender can get creative today.
Marino does not believe this dynamic will produce a banking crisis comparable to the savings and loan collapse of the early 1990s. Commercial real estate loans are typically distributed across multiple asset classes and many years of maturities within any given bank’s portfolio, not concentrated enough to threaten solvency at scale. But the financial stress in the sector is real, ongoing and not fully visible in public reporting.
The Office-to-Residential Shift: Demolition, Not Conversion
The idea of converting empty office buildings into apartments has attracted significant attention as both a real estate solution and a response to the national housing shortage. The reality is far more constrained, and the trend that’s actually occurring at scale is something different.
Direct office-to-residential conversion faces serious structural obstacles. Most office buildings have floor plates 40 to 60 feet deep, but residential code typically requires that no bedroom be more than 28 feet from a window line. Office buildings were also not designed to accommodate the dense plumbing penetrations that come with dozens of kitchens and bathrooms per floor. And purpose-built residential typically sells for 10%–20% more than converted office space, creating an economic problem that undermines conversion feasibility in most markets.
Nationwide estimates put the number of residential units that will come online through office conversion at roughly 75,000, against a national housing shortage that ranges, depending on the source, from four million to ten million units. The conversion trend is not moving the needle.
What is happening at meaningful scale, particularly in infill locations with transit access and strong residential land values, is demolition. The Irvine Company is tearing down two three-story office buildings in San Diego’s UTC submarket, totaling roughly 90,000 square feet, to construct two 550-unit apartment high-rises. The land, adjacent to a trolley stop and surrounded by retail and employment, is simply worth more as a vertical residential development than as aging class-C office space.
It’s not about converting office to residential. It’s about tearing down some of these B and C-class office projects that haven’t exploited their full entitlement density.
For tenants in markets with significant class-B and class-C office inventory, particularly older suburban campuses, the implication is real: some of the buildings you might consider leasing today will not exist in five years.
Industrial Real Estate Is Actually Worse Than Office
If the office market feels bad, the industrial market is objectively worse by several measures, and it has received far less public attention.
The sequence of events: when Covid hit and e-commerce demand surged, companies like Amazon, Walmart and Target couldn’t restock fast enough. Developers raced to build large-format warehouse buildings, 100,000 to one million square feet, knowing it would take two to three years to bring them online. Between 2020 and 2025, approximately 1.2 billion square feet of new industrial space was built across the United States. In a typical pre-Covid year, the industry delivered somewhere between 20 and 50 million square feet. The scale of overbuilding was historic.
By 2023 and 2024, e-commerce demand had normalized, government stimulus money had been spent and companies that had over-leased during the boom began putting space back on the market. Today, there are 250 million square feet of industrial sublease space available nationally, exceeding the 170 million square feet of office sublease space that has driven most of the coverage of the commercial real estate downturn.
While people instinctively feel the office space market is sick, industrial is worse. Every industrial market today in 2026 is two to three times higher availability rate than pre-Covid.
For businesses with warehouse, distribution or manufacturing footprints, this market represents a significant opportunity, one that Hughes Marino’s industrial tenant representation team is actively navigating on behalf of occupiers nationwide.
The Inland Empire: Ground Zero for Industrial Oversupply
Nowhere is the industrial correction more acute than the Inland Empire, the logistics hub east of Los Angeles that became the epicenter of the warehouse construction boom.
The numbers are stark. Pre-COVID, the Inland Empire industrial availability rate sat around 7 percent. By 2022, at the height of e-commerce-driven demand, it compressed to approximately 2%, one of the tightest industrial markets in recent history. During that period, Marino recalls representing a client seeking 300,000 square feet when only three buildings were available and ten companies were competing for each of them. In his 35 years of practice, he had never seen a landlord raise asking rent in the middle of active lease negotiations, until that moment.
Today, Inland Empire industrial availability stands at approximately 14%, double the pre-Covid rate and climbing. And conditions are worsening. Supply chains are under significant friction, and demand for large-format warehouse space is absorbing that shock.
I do think it’ll continue to get worse. I don’t think the bottom is here yet.
Why Industrial Rents Haven’t Fallen as Far as They Should
Given that the Inland Empire’s availability rate has doubled from pre-Covid levels, basic supply-and-demand logic would suggest rents should have returned to pre-Covid levels or lower. They have not. Rates that were roughly $0.75 per square foot pre-Covid, peaked near $1.75 per square foot in 2022, and sit today around $1.00 to $1.10 per square foot, still materially above where supply conditions would imply they should be.
The explanation is structural. Landlords who financed acquisitions and construction at peak valuations cannot cut rents without breaching loan covenants or forcing write-downs. And the brokerage community, which predominantly represents landlords, not tenants, has an economic incentive to maintain higher face rates, since broker commissions are tied to deal value.
There’s no transparency in my industry. Business owners and CEOs making real estate decisions are a little ignorant. That’s why I get on these shows, to try to educate business owners.”
For industrial tenants, this dynamic creates a significant opportunity, but only with the right representation. The gap between what landlords are asking and what the market should bear is large. Capturing it requires an advocate whose interests are aligned entirely with the tenant, not the landlord. That is precisely what Hughes Marino’s industrial tenant representation team provides.
What This Means for Commercial Tenants Right Now
The picture David Marino describes is, on balance, the worst commercial real estate market in more than 30 years, worse than the post-dot-com correction, worse than the period following the 2008 financial crisis. But for tenants, that is not bad news. It’s leverage.
For office tenants, particularly those with leases expiring in the next 12 to 24 months, the current market offers a negotiating position that rarely appears in a business owner’s career. Free rent packages of 6 to 12 months, fully funded tenant improvement allowances, below-market effective rents with maintained face rates: all of it is available for tenants who approach the market with the right information.
For industrial tenants, the market presents a similar opportunity with an added dimension: rents are still artificially elevated relative to true supply conditions, meaning the gap between what landlords are asking and what the market actually supports is wider than in the office sector. As more sublease inventory comes online and tariff-driven demand disruptions persist, that gap will only grow. In both asset classes, the critical variable is who represents you. Hughes Marino specializes in representing tenants and buyers, not landlords, which means every lease analysis, every market assessment and every negotiation is structured entirely around maximizing value for the occupier. In a market where landlords and their brokers are actively managing narratives and propping up pricing floors, that distinction has never mattered more.
Frequently Asked Questions: Commercial Real Estate Market 2026
By most measures, yes. National office markets have reached equilibrium after six-plus years of post-Covid rightsizing, with availability rates across major U.S. markets sitting at 20%–30%. The challenge for tenants is not timing the bottom, it is understanding that the bottom is likely to persist for three to five years, which means today’s tenant-favorable conditions are durable, not fleeting.
Vacancy measures space that is physically empty. Availability includes all space being actively marketed, including sublease space where tenants are still paying rent but have listed their space for others to take over. Availability is consistently higher than vacancy and more accurately reflects the supply that landlords are competing against. In most major office markets today, availability is 20%–30%; reported vacancy figures are lower, often substantially so.
Approximately 170 million square feet of office sublease space is on the market nationally, based on Hughes Marino’s assessment of 2026 market conditions. This figure is not fully captured in traditional vacancy reporting, which is one reason many tenants underestimate their true negotiating leverage. Hughes Marino’s office tenant representation team can provide a market-specific breakdown for any location.
By several measures, the industrial market is actually worse. There are approximately 250 million square feet of industrial sublease space on the market nationally, compared to 170 million square feet for office. Every major industrial market in 2026 is operating at two to three times its pre-Covid availability rate. Hughes Marino’s industrial tenant representation team works exclusively on behalf of tenants across the Inland Empire, Southern California and nationwide.
Landlord capital structures and a brokerage community that predominantly represents landlords have combined to hold face rates artificially elevated relative to actual supply conditions. Rents in markets like the Inland Empire remain around $1.00 to $1.10 per square foot despite availability doubling from pre-Covid levels. Tenants working with an exclusively tenant-side representative are in a far stronger position to negotiate rents that reflect market reality.
Landlords are currently offering substantial free rent packages, in some cases a full year of free rent on an eight-year lease, fully funded tenant improvement allowances covering construction costs and cash moving allowances, all while maintaining face rates to protect reported valuations. Tenants who know what to ask for can extract significant value beyond the headline rent number.
No, not at any meaningful scale. Estimates suggest roughly 75,000 residential units will come online through office conversions nationwide, against a housing shortage of four to ten million units. The structural challenges of conversion, floor plate depth, plumbing requirements, construction economics, severely limit where it is viable. What is happening at greater volume is demolition of B- and C-class suburban office buildings to develop residential from scratch on the underlying land.
Hughes Marino’s assessment, consistent with David Marino’s 35 years of cycle experience, is that the current commercial real estate downturn is unlikely to produce a banking collapse on the scale of the early 1990s savings and loan crisis. Commercial real estate loans are typically distributed across multiple asset classes and many years of maturities within any given bank’s portfolio, limiting concentration risk. That said, significant losses are being absorbed, lenders are under stress in concentrated office markets, and the full resolution of the industrial cycle has not yet begun.
Hughes Marino represents tenants and buyers, not landlords or developers. This eliminates conflicts of interest and ensures that every recommendation, every lease analysis and every negotiation is structured solely around maximizing value for the occupier. In a market where landlords and their brokers are actively managing narratives and propping up pricing floors, having a tenant-only advocate is more important than at any point in recent memory. Contact the Hughes Marino team to discuss your current lease, upcoming renewal or any commercial real estate decision.
