Office demand climbed sharply in the first quarter of 2026, fueled by technology firms, return-to-office policies, and a rebound in tenant touring activity.
According to VTSโ latest Office Demand Index, tenant demand across seven major gateway markets increased 13% year-over-year and 18% from the previous quarter, reaching its highest level since the pandemic began. The index measures active tenant touring requirements by square footage.
AI Boom Fuels Tech Leasing
Technology companies drove much of the growth, with demand from the sector rising 109% year-over-year. Legal and finance firms also increased office searches during the quarter, with quarterly demand up 41% and 54%, respectively.
Several major AI-related leases helped boost activity in top tech markets. In New York City, AI companies leased roughly 415,000 square feet during the quarter. OpenAI also signed large leases in Mountain View and Seattle earlier this year.
The increase in office touring activity follows another strong quarter for leasing overall. According to CoStar, Q1 2026 recorded the highest volume of signed office leases since 2018, with roughly 120 million square feet leased nationwide.
Return-to-Office Policies Continue Driving Demand
The office marketโs recovery is also being supported by employers pushing harder on return-to-office requirements as hiring slows and workers lose leverage in a softer labor market.
Even as leasing improves, companies are still generally taking smaller spaces than before the pandemic. Average lease sizes remain about 15% below pre-2020 levels, partly because tenants continue favoring newer buildings where large blocks of space are limited.
At the same time, office-using employment slipped slightly during the quarter, while long-term unemployment continued rising nationwide.
Recovery Remains Uneven Across Cities
Not every office market is seeing the same rebound.
San Francisco posted one of the largest gains in demand, up 124% year-over-year, while Seattle increased 44%. New York City also recorded modest growth.
Other major markets continue struggling. Boston demand fell 31% year-over-year, while Los Angeles and Chicago also posted declines.
The latest numbers suggest office demand is improving fastest in markets tied closely to AI and technology growth, while slower-growth cities continue facing a more uneven recovery.
