Despite anxiety over the current war in Iran and economic uncertainty at home, U.S. office demand posted sizable quarterly and annual gains in the first quarter, according to the latest VTS Office Demand Index (VODI) report. The increased growth in Q1 was primarily driven by finance, legal, and technology tenants—with quarterly and annual demand for office space up 18% and 13%, respectively. The double-digit climb now puts national office demand at its highest level since before the pandemic.
This resilience in office demand is even more notable when comparing against the complex broader economic landscape. Office-using employment, a primary driver of demand, fell year-over-year by 0.5%—and on a longer-term basis, is down 2% since the end of 2022. A decrease in office-using employment typically corresponds to lower demand for physical space; however, this simultaneously increases employer bargaining power related to remote work, allowing firms to mandate more on-site work to offset the drag on demand.
“Although tested against a turbulent backdrop, demand for office space has seen an exceptional start to the year, with remarkable double-digit quarterly and annual increases in demand,” said Nick Romito, CEO of VTS. “What perhaps is most notable about this quarter’s positive performance is that it was led not just by tech’s sustained AI boom, but also by finance and legal companies entering the market.”
Looking locally, Q1 saw a shift in performance across many cities, although San Francisco and New York continued to demonstrate strength compared against other markets.
San Francisco, New York, and Los Angeles all experienced double-digit increases in demand on a quarterly basis, with San Francisco climbing a whopping 70% quarter-over-quarter—continuing to benefit from being the global hub of the AI boom. New York’s positive performance was largely attributed to its diversity of industries, as demand from finance, legal, and technology tenants all grew. Los Angeles, which had posted year-over-year declines prior to Q1, recorded a significant uptick from the creative industry—a sector with outsized influence in the market.
On the opposite end of the spectrum, Boston held flat quarterly, but saw a substantial 31% decrease year-over-year, making it the worst-performing market in the report. Seattle, Washington, D.C., and Chicago—all lacking a major catalyst of growth—landed in the middle of the pack in terms of quarterly performance and experienced contractions. Of this middle tier, Chicago fell the furthest, down 11% quarter-over-quarter. Despite its quarterly decline, Seattle saw strong annual momentum, up 44% from 2025 levels.
“Despite the national surge, the local picture city-to-city remains quite nuanced. The AI boom continues to be a dominant headline for [the office sector], and markets that lack a major tech presence, or are without a primary growth lever in another industry, are seeing declines in demand,” said Ryan Masiello, chief strategy officer of VTS. “A persistent trend for many quarters is that San Francisco and New York are simply outshining the rest due to their positions as global hubs of tech talent, although LA’s positive performance this time around was a new bright spot— and it remains to be seen if Los Angeles can sustain growth in the near term.”