Office Demand Surges to Post-Pandemic High Despite Economic Headwinds

Office demand is showing renewed strength, reaching its highest level since the onset of the Covid-19 pandemic — even as global tensions and economic uncertainty continue to cloud the outlook.

New data from commercial real estate software firm VTS reveals that office tours, both in-person and virtual, surged in the first quarter of the year. The company’s Office Demand Index — a forward-looking metric that tracks early leasing activity — hit its strongest level since 2020, signaling potential growth in lease signings over the next year. 

Compared to the previous quarter, the index jumped 18%, while year-over-year demand rose 13%. The increase suggests that businesses are once again exploring physical office space at a faster pace after years of pandemic-driven slowdown.

More than just tech driving the rebound

What’s particularly notable about this recovery is the broader mix of industries contributing to it. While tech companies — especially those tied to artificial intelligence — remain a major force, they’re no longer the sole drivers of demand.

Financial services and legal firms are also stepping back into the market, helping diversify leasing activity. This shift could signal a more stable recovery compared to earlier phases that relied heavily on tech sector growth.

A disconnect between jobs and office demand

The rebound comes with an interesting contradiction: office-using employment hasn’t fully recovered. According to the U.S. Bureau of Labor Statistics, office-related jobs remain about 2% below 2022 levels. Typically, that would point to softer demand for workspace.

However, the current environment may be shifting employer-employee dynamics. Slower hiring in some sectors could be giving companies more leverage to require in-office work — boosting demand for physical office space even without a full employment rebound.

Vacancy rates improve — but only slightly

Office vacancies are beginning to show modest improvement, though challenges remain.

A recent report from JLL found that the national office vacancy rate dipped to 22.2% in the first quarter, a slight decline from the previous quarter and below its peak in mid-2025.

Even so, vacancies are far from evenly distributed. Older, large-scale office buildings — especially those owned by financially constrained landlords — account for a significant share of empty space. In fact, about 10% of office properties represent more than 60% of total vacancy nationwide, highlighting a widening gap between premium and outdated inventory.

Some cities are leading the recovery

Location continues to play a major role in how the office market is rebounding. San Francisco and New York City are emerging as leaders. In San Francisco, rapid growth in AI-related jobs is driving demand, while New York benefits from a diverse economy that supports steady leasing activity.

Los Angeles is also gaining momentum, posting double-digit increases in demand during the quarter. Growth in the entertainment and creative sectors appears to be a key factor behind the city’s recent performance.

Other markets continue to lag

Not all cities are seeing the same recovery. Boston recorded the weakest performance in the latest data, largely due to setbacks in its life sciences sector following cuts to government funding. Meanwhile, Seattle, Washington, D.C., and Chicago are also experiencing declining demand, as slower job growth weighs on office expansion.

These differences highlight how closely office demand is tied to industry-specific growth. Markets without a strong tech presence — or another major economic driver — are having a harder time regaining momentum.

What comes next for the office market?

The latest data points to cautious optimism for the office sector. While high vacancy rates and uneven regional performance remain challenges, the rise in demand suggests companies are reengaging with physical workspace in a meaningful way.

Still, the durability of this rebound is far from certain. Future performance will likely depend on broader economic conditions, hiring trends, and how firmly employers continue to push return-to-office policies.

For real estate professionals, the takeaway is clear: the office market isn’t recovering evenly — but in the right locations and sectors, momentum is building again.