US Office Demand Hits Post-Pandemic Peak Amid AI and Finance Surge

Commercial real estate is showing signs of a robust recovery as the VTS Office Demand Index hit its highest level since the onset of the pandemic. In the first quarter of 2026, new in-person and virtual office tours surged, rising 18% from the previous quarter and 13% compared to the same period last year. This uptick comes despite a complex macroeconomic environment characterized by geopolitical tensions with Iran and domestic economic uncertainty. Interestingly, the demand spike persists even though the Bureau of Labor Statistics reports that office-using employment remains 2% lower than 2022 levels, suggesting employers may be leveraging current labor market conditions to mandate returns to the office. National vacancy rates saw a slight decline, falling 14 basis points to 22.2% in Q1. This represents a 30-basis-point drop from the peak seen in the second quarter of 2025. However, the market remains bifurcated; approximately 10% of office buildings account for more than 60% of the total national vacancy, primarily consisting of aging assets with financially distressed owners. The recovery is highly localized. San Francisco and New York City are leading the charge, fueled by AI-driven tech growth and employment diversity, respectively. Los Angeles also reported double-digit quarterly demand growth, credited to the creative sector. Conversely, markets like Boston are struggling due to government funding cuts in life sciences, while Seattle, Chicago, and Washington D.C. face headwinds from stagnant employment growth.