The AI Boom Has Widened The Split Between Office Winners, Losers

A new office market has emerged in the six years since the global pandemic struck, casting Americans out of the office to work from home.

It’s been three years since even the most careful states lifted restrictions, and the office sector emerged not only battered by the past but also confronting a future permeated with generative artificial intelligence after the tech burst onto the scene with the 2022 public release of ChatGPT.

The AI-driven office leasing cycle has begun at the same time that corporate occupiers are rotating into the highest-quality office properties and cutting their overall footprints, widening the stark divide that separates the landlords that are winning tenants from those that are losing out. 

“I'm constantly surprised how these segments of a few buildings in each market are handily outperforming the market at large,” said Daniel Vickerman, the head of commercial investment research at Heitman.

But for many office landlords, securing those tenants is an increasingly complicated game.

Tenants inked 61.7M SF worth of office leases across major U.S. markets in the first quarter, down nearly 20% year-over-year and driven in part by a 48% drop in deals over 100K SF, according to Avison Young. 

A handful of premier office towers absorb the majority of leasing, while demand lags across the rest of the market, with the national office availability rate at 22.2%.

“Clients are trying to survive right now in the office market. They don't care about 2019,” said Alain R'bibo, a real estate attorney at Allen Matkins based in Century City, one of the most in-demand office markets in Los Angeles. “It's not relevant anymore. They're trying to get to something that is sustainable. They're trying to cover their mortgage.” 

The office market looks gray from a macro perspective, but gleaming islands of profits still exist in most markets, attracting investor attention.

Heitman, a global investment firm with $47B in assets under management, is more interested in buying office buildings now than at any point in the decade Vickerman has been there, he said. The company is looking to acquire a top-tier office tower in a prime market, confident that the best assets will continue to attract demand regardless of AI disruption.  

“I don't want to miss the forest for the trees, the office market in aggregate has a very high vacancy rate. But when you look at these segments, there’s really strong demand growth,” Vickerman said.

The very top end of the market has been buoyed in the last couple of quarters by a burst of AI and tech leasing. Anthropic leased more than 500K SF in San Francisco, and OpenAI added 280K SF to its footprint in the city, which now spans more than 1M SF.

In New York, AI firms leased 415K SF in the first quarter, half the total volume that the segment leased across 2025, according to JLL. 

In some cases, the biggest AI firms are signing onto new leases faster than they can move in, betting on future growth. Fifty-five percent of New York's AI leasing surge is earmarked for future growth, JLL reported.

“It's significant blocks of space being taken off the market, but not necessarily being occupied,” said Harry Klaff, a principal at Avison Young leading the brokerage's U.S. strategic growth. “So it has a little bit of a tinge of a tech run-up, but I also think we’re in the really early days.”

Just behind the major firms taking the most space is a large group of smaller AI and tech firms that are also aggressively signing leases, and Klaff said the nascent integration of AI into everyday life leaves a large runway for more leasing. 

“It's really early innings,” he said. “I don't see this ending anytime soon.”

But the tech’s potential to cut costs, optimize headcounts and trim office space is also percolating across the marketplace. A plan from Amazon that was leaked in March revealed efforts to cut 49,000 desks from its footprint, the equivalent of roughly 14M SF, although the tech giant still plans to open new offices while cutting its total space. 

Meta told employees this week that it was laying off 10% of its workforce, or roughly 8,000 people, in a bid to boost efficiency and offset its AI spending, Bloomberg reported. The tech giant cut another 700 jobs in March.

Total commercial real estate sales volume is up year-over-year despite, and in some ways because of, the headwinds facing most office landlords. 

Avison Young tracked $6.3B in first-quarter office sales, and MSCI Real Assets data showed office trades in the month of March were up 54% year-over-year, according to an investor note from JPMorgan Chase. Office properties traded last month for an average capitalization rate of 7.26%, a 23-basis-point compression from February.

But, unlike Heitman, most buyers aren’t looking at the top of the market. Instead, they’re making value-add and opportunistic plays that sometimes include conversions or capital improvements but other times just involve recapitalizing a property at a supportable valuation.  

“People are definitely getting comfortable picking up assets at 20 cents on the dollar,” R'bibo said. 

Investors in the office sector have been able to keep availability from climbing higher in part by slashing inventory through property conversions, with the amount of U.S. office space declining by more than 2% quarter-over-quarter, according to Avison Young’s data.

Planned office-to-residential conversions jumped 28% over the course of 2025 to 90,300 apartments, with office conversions now accounting for 47% of nationwide adaptive reuse projects, according to RentCafe.

Part of the uptick in sales is also driven by inertia, as capital markets come unstuck and debt markets open up, with banks returning to the asset class and finding it more crowded by a group of private credit competitors.

Capital from funds that had been sidelined is being put to work as money managers accept macroeconomic volatility as the price of doing business, not least because some are facing deadlines to make investments or return cash, said Michelle Kelban, a partner at Kirkland & Ellis handling real estate matters from M&A to leasing for institutional clients. 

The ongoing war with Iran might have once derailed investor confidence, but the series of jolts that markets have endured over the last year, from tariffs to mass deportations, have built resilience in the market and have not held back buyers, Kelban said. 

“People have digested that it's going to be a bumpy road,” she said. “It's unpredictable. There's a lot going on, objectively speaking, in the world. The markets got sick of reacting to it and have decided collectively that we're going to keep doing business as usual until it's clear that we can't.”