Office Feasibility Study

An office feasibility study answers two questions a lender cannot settle from a national headline. First, which segment of the office market does the subject building compete in, because the gap between a 6 percent and a 20 percent vacancy rate is a question of building class, building size and market, not of timing. Second, does the project service its debt at the program's DSCR hurdle under the occupancy, equity and eligibility rules that apply to it, whether that is SBA 7(a) or 504, USDA Business and Industry or Community Facilities, or a conventional construction loan.

MMCG Invest prepares office feasibility studies for borrowers, developers and lenders nationwide. Every study is signed by the firm, prepared under USPAP discipline, and built around the exhibits a credit committee reads: a DSCR schedule by year, a break-even occupancy test, a net effective rent derivation, a tenant improvement and leasing commission reserve, a rollover map and a replacement reserve. The study places the subject in its correct competitive set before any of that arithmetic begins.

Office is not one asset class for lending purposes. The rules and the market data split by use, and so do our pages.

The two numbers a lender sees most often describe different buildings. CoStar's Office National Report dated October 4, 2026 puts national office vacancy at 13.8 percent. Cushman and Wakefield's second quarter 2026 report puts it at 20.1 percent. Neither is wrong. CoStar's published methodology counts office buildings of every class and size, single-tenant and multi-tenant, including owner-occupied buildings. Cushman and Wakefield's national MarketBeat defines inventory as space in buildings above a size threshold set market by market that can be rented by a third party, and states that owner-occupied and federally owned buildings are generally not included. The broker figure describes the competitive multi-tenant market. The CoStar figure describes the whole stock.

For an SBA or USDA office borrower this distinction is the study. The owner-occupied share of a building sits inside CoStar's denominator and is, by definition, occupied. The leased share competes in the third-party market the brokers measure. A study that applies one blended vacancy figure to both shares is wrong in both directions.

Within CoStar's figure, the segments diverge sharply. The same report shows 4 and 5 Star buildings at 20.3 percent vacancy, 3 Star at 12.3 percent, and 1 and 2 Star at 6.2 percent. Small markets run far below gateways: Lebanon, Pennsylvania at 1.7 percent, Kenosha at 2.1 percent, Hickory at 2.4 percent and Gainesville at 3.3 percent, against San Francisco at 20.2 percent, Houston at 19.4 percent, Denver at 17.9 percent, Washington at 17.5 percent and Chicago at 17.1 percent. Distress is concentrated rather than general. CoStar reports that buildings at least 25 percent vacant now hold 80 percent of all vacant office space. Cushman and Wakefield's June 2024 Mid-Year Macro Outlook found the bottom 10 percent of office assets account for more than 730 basis points of national vacancy, and that 30 percent of Class A buildings have essentially no vacancy. The 20 percent headline is mostly the problem of buildings an owner-user borrower will never compete with.

Distress is still real where it sits. Trepp reported the office CMBS delinquency rate at 11.91 percent in July 2026. A study for a metro multi-tenant building has to work at the submarket and building-class level, because the national figure averages two markets that no longer behave alike.

The figures below are from the CoStar Office National Report dated October 4, 2026, licensed to MMCG Invest, unless another source is named. They are the baseline MMCG uses in every office study, refreshed to the subject's market and submarket at engagement.

Demand has turned. Net absorption over the trailing twelve months was 15.7 million square feet, positive for four consecutive quarters, closing a five-year period in which occupancy losses totaled nearly 250 million square feet, about 3 percent of inventory. New leasing volume in the first half of 2026 was about 220 million square feet, near pre-pandemic averages, and the number of lease deals was the highest in a decade. The average deal is about 15 percent smaller than in the late 2010s. The recovery has a narrow geographic base: financial services in New York, Dallas and Charlotte, and AI-related leasing in San Francisco, San Jose and New York, while Atlanta, Chicago, Los Angeles, Seattle and Washington remain depressed.

Supply is shrinking. Deliveries were 22.6 million square feet over twelve months. The construction pipeline is 47.6 million square feet, close to the lowest level on record and below the early 2011 trough. Demolitions have averaged more than 9 million square feet per quarter for eleven quarters and exceeded deliveries over the past year. CoStar projects that inventory could contract by as much as 1 percent by the end of the decade. For an owner-user building this is the most useful fact in the report: little new competitive supply is coming.

Rents and concessions. National asking rent is $37.85 per square foot, up 2.0 percent year over year; 4 and 5 Star asking rent is $50.70, 3 Star $32.81 and 1 and 2 Star $27.30. Effective rents sit well below asking. CoStar reports that concessions of one month of free rent per year of lease term are now common, against one month per two years in the late 2010s, and that tenant improvement allowances for first-generation shell space have increased by as much as 50 percent, typically against commitments of ten years or more. Since the beginning of 2024, more than 80 percent of leases under 10,000 square feet in institutional-grade buildings have been for move-in-ready spec suites on terms of 3 to 7 years.

Pricing. The national market cap rate is 8.7 percent (4 and 5 Star 8.1 percent, 3 Star 8.9 percent, 1 and 2 Star 9.4 percent). Market price is $279.66 per square foot nationally and $193.54 per square foot for 1 and 2 Star buildings. Trailing sales volume was $60.1 billion, up 31 percent year over year in July, with private investors making about half of all transactions and owner-users about 20 percent.

Employment behind the demand. Education and Health Services employment is growing 1.87 percent against total employment growth of 0.43 percent, while Information is contracting 2.81 percent and Financial Activities 0.87 percent (Oxford Economics data reported by CoStar). The office users that serve local populations, medical practices, professional firms and insurance agencies, have demand drivers unlike the technology and finance tenants behind gateway vacancy.

The exhibits are the study. Every figure in the narrative traces to a workbook cell, and the workbook is delivered with the report.

Segment placement. The subject is placed by class, size, submarket and tenancy against the matching competitive set, with the owner-occupied share and the leased share benchmarked separately.

Two-population underwriting. The owner-occupied share is underwritten on the operating company's cash flow, with the rent the company pays its real estate holding entity treated as debt service coverage rather than market income. The leased share is underwritten at multi-tenant vacancy and credit loss for its class and market, at net effective rent, with tenant improvement and leasing commission reserves at each rollover.

Net effective rent. Free rent is spread across the lease term. At one month free per year of term, a five-year lease loses 5 of 60 months, or about 8.3 percent of face rent, before any tenant improvement cost. Spec suite delivery on 3 to 7 year terms shortens the rollover interval and raises the reserve.

DSCR by year. Coverage is reported for every projection year, not only the stabilized year, against the hurdle the program applies. For USDA loans the ratio follows the 7 CFR 5001.3 definition: EBITDA less reasonably expected replacement capital expenditures, divided by annual debt service, which means the pro forma carries a replacement reserve line supported by the property condition report.

Break-even occupancy. Operating expenses plus debt service, divided by potential gross income, shown for the whole building and for the leased share alone.

Rollover map. Each third-party lease expiry mapped against the loan term, with any year in which more than one third of leased income rolls over flagged and reserved.

Equity sufficiency. Tested against the SBA injection for the structure and, for USDA, against Table 1 to 7 CFR 5001.105(d), with pro forma ratios compared with the RMA Annual Statement Studies median quartile where an equity reduction is sought under 5001.105(d)(5)(ii).

Construction cost verification. Project costs are verified against contractor bids and a third-party cost review for the subject project. MMCG does not publish a generic cost per square foot table for office, because the public ranges in circulation are contractor marketing rather than cost data.

The method is set out in full in MMCG's feasibility study methodology.

Each rule below carries its citation and a verification status. "Verified" means the text was read in the Code of Federal Regulations. "Reported" means the figure comes from lender and practitioner summaries of SOP 50 10 8.1 and has not yet been checked against SBA's own text.

SBA 7(a) and 504

USDA Business and Industry

USDA Community Facilities

USDA will finance a rural office building that SBA will not, and the line it draws is control and purpose rather than tenancy. Four provisions set the boundary. 7 CFR 5001.105(b)(12) makes facilities for lease to private commercial businesses an eligible purpose. 5001.115(a) bars any speculative real estate investment. 5001.115(g) bars property used primarily for commercial rental where the borrower has no control over tenants and the services offered. 5001.126(a)(1) allows leases where they are customary practice and provide for the borrower's management control of the project. Read together, a rural multi-tenant office or lease facility qualifies when the borrower selects and controls its tenants, the tenants are identified private commercial businesses, ideally under pre-leases, and the project's purpose is job creation in the community rather than passive yield. The regulation does not define "speculative," so the determination is the State office's, and a feasibility study carries the pre-leasing and absorption evidence that supports it.

Three cautions follow from the text. A building leased mainly to government agencies falls under 5001.115(j). Equity for a new business rises to 20 percent of the balance sheet or 25 percent of project cost, and to 25 percent where the guarantee is requested before construction completes. And a guaranteed loan above $1,000,000 to a new business requires the independent study under 5001.306(a)(3)(i), with scope set by the Agency.

Two further USDA routes apply to rural office. Community Facilities finances clinics, rural health clinics and FQHCs owned by nonprofits and public bodies, and has funded office buildings converted to clinic use; that material sits on the medical office page. Rural Business Development Grants and Rural Innovation Stronger Economy grants fund coworking spaces, incubators and innovation hubs through public and nonprofit sponsors; that material sits on the coworking page. The Rural Energy for America Program finances energy efficiency improvements to an existing rural office building where the project will use less energy on an annual basis than the original building and sits in a rural area, 7 CFR 5001.107, with an energy assessment by a qualified auditor above $80,000 of project cost; 5001.122(n) expressly permits a REAP applicant to lease the improved building to tenants.

MMCG has not located a published USDA B&I guarantee for a multi-tenant office project. The eligibility analysis above rests on the regulation text, not on precedent, and a study prepared for a rural office project states that.

The office lending pages that rank for these searches repeat several errors. A study prepared on them fails at credit committee.

Office feasibility studies start at $4,900, fixed fee quoted at proposal stage. Standard delivery is 9 to 16 business days, with rush turnaround from 5 business days. A senior analyst responds to proposal requests within 12 business hours.

The lender receives a signed report with the exhibit workbook: market and segment placement, competitive set and lease comparables, demand analysis, the pro forma with DSCR by year, break-even occupancy, sensitivities, and the conditions under which the determination holds. Where a program's independence requirement applies, as it does for USDA under 7 CFR 5001.306 and 5001.304, the study is prepared and signed as an independent consultant's report.

Michal Mohelsky, J.D., FMVA, Practicing Affiliate of the Appraisal Institute, Principal in charge. MMCG Invest, LLC, 27 Maiden Lane, Suite 625, San Francisco, CA 94108. (628) 225-1110. michal@mmcginvest.com. Book a 30-minute scoping call or send the five-question quick start.

Sources: CoStar Office National Report, United States, October 4, 2026 (licensed to MMCG Invest); Cushman and Wakefield, U.S. National Office MarketBeat, Q1 and Q2 2026, and Mid-Year Macro Outlook, June 2024; Trepp CMBS Delinquency Report, July 2026; 13 CFR 120.110, 120.111, 120.131 and 120.160; 7 CFR Part 5001 (current through October 1, 2026); SBA Information Notices 5000-880695 and 5000-882227; Congressional Research Service R48462.