My XML layout is not rendering with this error message. I am already using Java 8.
Also using latest build tools in Gradle.
and
I faced the problem "Android N requires the IDE to be running with Java 1.8 or later." The error kept showing up in spite of setting C:\Program Files\Java\jdk1.8.0_92 as the project's JDK in File > Project Structure.
I solved it by updating JAVA_HOME in my environment variables from C:\Program Files\Java\jdk1.7.0_67 to C:\Program Files\Java\jdk1.8.0_92. When I did that and restarted Android Studio, the design mode became available.
OS: Windows 10
Android Studio: 2.1.2