Office Tenants Are Touring Like The Pandemic Never Happened
Tenant requirements for office skyrocketed in the first quarter, another sign the sector might be turning a corner.
The amount of space tenants are seeking is at its highest level since the pandemic, according to VTS’ Office Demand Index released Tuesday. Demand is up 13% year-over-year and 18% quarter-over-quarter.
The index tracks total square footage of tenant requirements reflected in active touring activity across seven gateway markets.
Technology, legal and finance tenants continue to drive improvement. The artificial intelligence boom is propping up tech demand, which ballooned 109% year-over-year. Quarterly, it grew 29%.
Legal and finance tenants were clamoring for office space in the first quarter with fervor as well. Demand within both sectors went up 41% and 54%, respectively. The turnaround was sharp, as demand from both industries is still down year-over-year. Legal is down 5%, and finance has dropped 23%.
An uptick in touring should lead to increased leasing down the road, which will build on a market already in recovery.
The first quarter was the most active period for signed deals since 2018, according to CoStar.
There were 25% more leases signed in Q1 2026 than a year prior, amounting to 120M SF. Lease sizes are still 15% smaller than pre-pandemic, partly because of the lack of large space available in new buildings, which tenants still favor, and because hiring is restricted and limiting companies’ growth.
The labor market is softening. The number of people who have been unemployed for over six months increased by 322,000 year-over-year in March, according to the Bureau of Labor Statistics. Office-using employment fell 0.2% last quarter, dragging on office demand.
What's helping boost demand, VTS stated, is another result of a rough employment landscape: employers gaining the upper hand in mandating a return-to-office policy.
But RTO has a potential headwind ahead of it. Increased energy prices from the skyrocketing price of oil as the war in Iran persists might dampen mass callbacks to the office.
While national demand is stellar, not every local market is thriving. Those without a strong tech market aren’t faring as well, Ryan Masiello, chief strategy officer at VTS, said in a press release.
In San Francisco, demand is up 124% year-over-year. In Seattle, it’s up 44%, and New York City posted 3.4% growth. These markets also secured major tech leases in the first quarter. AI companies took up 415K SF in NYC. OpenAI leased 450K SF in Mountain View, California, in March. It also snapped up 296K SF in Seattle the previous month.
Laggards include Boston, where demand is down 31%, Chicago, which is down nearly 2% year-over-year, and Los Angeles, down 5.2%.
