Momentum for the Midwest office market? It slowed a bit in the second quarter, according to the latest research from Newmark.
According to Newmark, the Midwest office market posted its weakest quarter of net absorption in a year, with tenants giving back 622,000 square feet of office space. The result of this? Year-to-date absorption reached negative 1.16 million square feet in the Midwest office sector, a significant change from the positive 1.46 million square feet recorded here during the same period a year earlier.
But there is an important factor to keep in mind: The Midwest’s office inventory continues to shrink thanks to conversions. That is helping to keep vacancy rates in this sector from climbing even higher.
That is one of the key takeaways from Newmark’s Second Quarter 2026 Midwest Office Market Conditions & Trends report. The report found that the region’s total office inventory fell to 763.9 million square feet in the second quarter, down 2.1 million square feet from the first quarter and 17.5 million square feet, or 2.2%, from a year earlier.
Conversions and demolitions are removing obsolete office buildings from the market much faster than new construction is adding space.
Without those removals, Newmark said, the regional vacancy rate would have reached a record high. Instead, vacancy held steady at 22.1%, essentially unchanged from the first quarter and only 20 basis points higher than a year ago.
Minneapolis bucks the trend
In good news for the office market in the Twin Cities, though, the Minneapolis-St. Paul area ranked as one of the brighter spots in the Midwest during the second quarter.
The market recorded positive net absorption of nearly 112,000 square feet in the second quarter, according to Newmark’s data. That put Minneapolis among the markets posting gains while several other major Midwest markets struggled with substantial occupancy losses.
Minneapolis also remained one of the region’s most expensive office markets. Average direct asking rents reached $30.36 a square foot, second only to Chicago’s $35.57. Those Minneapolis rents helped push the region’s overall direct asking rate to $28.76 a square foot. Even though the regional average slipped 0.8% from the first quarter, it remained 4.3% above the second quarter of 2025.
The Minneapolis market also recorded one of the Midwest’s larger office investment sales during the quarter. A 328,149-square-foot property at 3701 Wayzata Blvd. traded for $34 million, or $104 a square foot. And Soo Line Railroad Company signed a new 40,850-square-foot lease at 120 S. 6th St. in Minneapolis in June.
That activity doesn’t mean the Twin Cities office market has escaped the broader pressures facing the sector. But compared with the sharp occupancy losses recorded in several other Midwest markets, Minneapolis entered the second half of 2026 with far more momentum.
Chicago provides another bright spot
Chicago was the other major Midwest market to post a meaningful gain in the second quarter. Tenants in this market absorbed 522,000 square feet, helping offset some of the steep losses elsewhere in the region. Kansas City added another 314,000 square feet. Together, those two markets recorded 836,000 square feet of positive absorption, largely because existing tenants expanded.
The picture looked different in Cleveland, Indianapolis and Detroit.
Cleveland alone recorded a 666,000-square-foot occupancy loss, while Indianapolis shed 399,000 square feet and Detroit lost 291,000 square feet. St. Louis contributed another 230,000-square-foot loss. Combined, those four markets accounted for 1.59 million square feet of move-outs during the quarter.
Cleveland’s negative results were largely because Progressive Insurance exited its owner-occupied building, Newmark reported.
Fewer tenants, fewer buildings
The second-quarter numbers illustrate just how much the Midwest office market is changing.
Office tenants are still vacating office space. But landlords, developers and investors are also removing some of that space from the competitive inventory through conversions and demolitions.
The Midwest region delivered just 39,500 square feet of new office space during the second quarter. At the same time, 2.1 million square feet disappeared from the inventory, largely thanks to conversions. That helped prevent the office vacancy rate in the Midwest from rising more sharply.
Sublease space, meanwhile, is becoming less of a concern than it was during earlier stages of the office downturn. Newmark counted 15.3 million square feet of available sublease space, equal to 2% of the region’s rentable inventory and just 9.1% of all vacant space.
Milwaukee and Chicago carried the largest sublease exposure, at 2.9% and 2.5% of inventory, respectively. Kansas City and St. Louis had much less, at 0.8% and 1%.
The three largest office sales in the Midwest all occurred in Chicago and totaled $293.5 million across 3.5 million square feet, an average of just $84 a square foot.
That is a long way from the pricing that office buildings commanded before the pandemic.
And for now, Newmark’s second-quarter numbers suggest that the Midwest office market’s recovery remains uneven. Some markets are beginning to post positive absorption and attract new leasing activity. Others are still coping with large blocks of space being returned to the market.
