Madison Office Market Update. Q2 2026
Madison’s office market moved against the national trend during the second quarter. While many major U.S. office markets improved, Madison’s vacancy continued to increase.
Overall vacancy increased to 16.3%, leasing activity slowed to 114,800 square feet across 48 transactions, and the market recorded 36,500 square feet of negative net absorption during the quarter.
While many large cities are beginning to benefit from improving office utilization and slowing new construction, Madison continues to work through a combination of downsizing, tenant consolidations, and elevated suburban vacancy.
The Big Picture
📈 Overall vacancy increased to 16.3%
📉 Net absorption totaled (36,500 SF) during Q2
📊 Year-to-date absorption reached (56,300 SF)
🏢 Downtown Class A vacancy remained relatively healthy at 10.6%
🏬 Combined suburban Class A vacancy increased to 22.1%
Market Conditions
At the end of 2025, there were signs that Madison’s office market might be approaching equilibrium. Six months later, that conclusion looks premature.
The largest divide in today’s market is between downtown and suburban Class A buildings.
Downtown Class A vacancy held at a relatively healthy 10.6%, supported by government, university and institutional demand. Suburban Class A vacancy climbed to 22.1%, widening the performance gap that has developed over the past year.
Class B buildings quietly posted one of the better quarters in the market, recording 33,800 square feet of positive absorption while vacancy declined to 14.7%. Class C buildings moved the opposite direction, losing 21,700 square feet of occupancy as vacancy increased to 15.1%.
West Madison remains the market’s biggest challenge.
Vacancy increased to 25.6%, including 31.6% among Class A buildings. UW Health’s relocation from 1212 Deming Way returned 86,400 square feet to the market, adding another large block of space to a submarket already carrying substantial availability.
Sublease inventory continues to decline, but much of that reduction reflects tenants returning space to landlords rather than new tenants occupying it. That distinction matters when evaluating true demand.
Leasing Market
Leasing activity totaled **114,800 square feet across 48 transactions**, a slower quarter than earlier in the year.
Many tenants continue to renew existing leases, reduce footprints, or relocate into newer buildings rather than expand. Organic office growth remains limited, making it difficult for the market to absorb the larger vacancies created by corporate consolidations.
Rental Rates
Average asking rents declined to $21.83 per square foot, full service gross, down from $22.03 in Q1 and $22.10** one year ago.
Headline rents have softened modestly, while landlords continue offering larger tenant improvement packages, rent abatements and other concessions to secure quality tenants.
For tenants, particularly those considering suburban Class A space, market conditions continue to create negotiating leverage.
Owners face a different environment. Longer lease-up periods, higher capital costs and increased competition place greater importance on building quality, amenities, suite presentation and operating efficiency.
Investment Sales
Two significant office transactions closed during the quarter.
The largest involved a 200,000-square-foot Middleton office building leased to UW Health. The property sold to ASG Equities for $39.1 million, approximately $195 per square foot. UW Health recently extended its lease for another 20 years and carries an AA- credit rating.
The second notable transaction was 2908 Marketplace Drive in Fitchburg, a 65,000-square-foot Class B office building. It sold for $7.9 million, or approximately $122 per square foot, reflecting an estimated 10.9% capitalization rate while roughly 94% occupied.
These two sales illustrate today’s office investment market. Buildings with exceptional credit tenancy and long lease terms continue attracting capital. Traditional multi-tenant office properties remain much more difficult to finance and value, resulting in materially higher cap rates than industrial, retail or multifamily investments.
What Owners Should Watch
Office owners should focus on more than asking rents.
Competitive positioning increasingly depends on factors such as:
- Building amenities
- Modernized common areas
- Efficient floor plates
- Attractive, move-in-ready suites
- Tenant improvement strategy
- Operating efficiency and load factors
Buildings that reduce a tenant’s occupancy costs while providing a better workplace experience are separating themselves from the rest of the market.
Outlook
Madison’s office market will eventually stabilize, but vacancy is unlikely to improve until tenant demand begins consistently exceeding the amount of space returning to the market.
For now, tenants retain meaningful negotiating leverage, while owners continue competing for a limited pool of expanding users.
If you’re evaluating a lease renewal, acquisition, disposition, refinancing or repositioning strategy, I’d be happy to discuss how these market conditions could affect your property.
Key Statistics
| Metric | Q2 2026 |
|---|---|
| Overall Vacancy | 16.3% |
| Net Absorption | (36,500 SF) |
| YTD Absorption | (56,300 SF) |
| Leasing Activity | 114,800 SF |
| Transactions | 48 |
| Downtown Class A Vacancy | 10.6% |
| Suburban Class A Vacancy | 22.1% |
| West Madison Vacancy | 25.6% |
| Average Asking Rent | $21.83/SF FSG |
Frequently Asked Questions
Is Madison’s office market improving?
Not yet. Vacancy increased during Q2 2026 and absorption remained negative, even as many major U.S. office markets reported improving occupancy.
Why is suburban office space struggling?
Many companies continue reducing office footprints or consolidating into newer, higher-quality buildings. Large suburban vacancies are entering the market faster than they are being absorbed.
Are office rents falling?
Average asking rents declined modestly during Q2. More significant than the rent changes are the larger tenant improvement allowances and leasing concessions many landlords are offering.
Is now a good time to lease office space?
For tenants, current market conditions provide substantial negotiating leverage, particularly in suburban Class A buildings where vacancy exceeds 22%.
What does negative absorption mean?
Negative absorption means more office space became vacant than was newly occupied during the quarter. It is one of the clearest indicators of weakening demand.
Chris Caulum, SIOR
Vice President of Commercial Brokerage
Chris specializes in industrial and office real estate throughout Madison and South-Central Wisconsin, helping owners, investors, and businesses make informed commercial real estate decisions.
608-443-1040
ccaulum@oakbrookcorp.com
Meet Chris Caulum