A “For Rent” sign in the financial district of San Francisco, California, United States, Wednesday, May 3, 2023.
Jason Henry | Bloomberg | Getty Images
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Despite the war with Iran and continued economic uncertainty in the United States, demand for office space is recovering at a steady pace.
In the first quarter of this year, new in-person and virtual office visits reached their highest level since the start of the pandemic, as measured by the VTS Office Demand Index. The index is a future indicator of lease signings in about a year or more.
The index increased 18% from the fourth quarter of 2025 and 13% from the same quarter a year ago.
“Although tested against a turbulent backdrop, demand for office space has had an exceptional start to the year,” Nick Romito, CEO of commercial real estate software company VTS, said in a statement. “Perhaps most notable about this quarter’s positive performance is that it was driven not only by the sustained AI boom in the technology sector, but also by the market entry of financial and legal companies.”
The increase in demand is curious, given that office employment is still down 2% from 2022, according to the Bureau of Labor Statistics. Usually, that would lead to less demand for office space, but the drop in employment could also give employers more leverage to bring workers back to the office.
Nationally, for all buildings, the office vacancy rate fell 14 basis points to 22.2% in the first quarter of this year compared to the previous quarter and is down 30 basis points from the last peak in the second quarter of 2025, according to a report from JLL, a commercial real estate services and investment management company. Vacant housing remains hyperconcentrated, primarily in large, aging buildings whose owners are struggling financially, with 10% of office buildings accounting for more than 60% of total vacant housing nationally.
As with everything in real estate, the recovery of offices is local. San Francisco and New York are leading office demand as AI technology employment grows rapidly in the former and job diversity fuels the latter. Los Angeles also saw a double-digit increase in demand on a quarterly basis, fueled by significant growth in the creative industry, according to VTS.
Cities experiencing lower demand include Boston, which was the worst-performing market in the report. Life sciences offices have been hit hard in this city, due to significant reductions in government funding.
Additionally, demand is contracting in Seattle, Washington, DC, and Chicago because these countries are not experiencing strong job growth.
“The AI boom continues to dominate headlines in the office sector, and markets that lack a major technology presence, or lack a major growth lever in another sector, are seeing demand decline,” Ryan Masiello, VTS chief strategy officer, said in a statement. “Los Angeles’ positive performance this time around was another bright spot – and it remains to be seen whether Los Angeles can sustain its growth in the near term.”