Office demand remains resilient through AI surge, Iran conflict

Office-market demand strengthened in Q1 2026, driven largely by technology-sector leasing tied to AI adoption, lifting the VTS Office Demand Index to 79 (post‑pandemic high). Technology demand jumped 109% year‑over‑year and San Francisco tech demand rose 70% quarter‑over‑quarter; finance and legal sectors also posted strong gains. Overall leasing was stable to slightly higher (56.2 million sq ft, +0.2% YoY), net absorption hit its best Q1 since 2020, vacancy eased (18.6%, -10bps) and average asking rents rose 2.2% to $37.21/sq ft. Analysts warn short‑term headwinds — notably higher oil prices tied to the Iran conflict and slower hiring — could temper return‑to‑office trends, but constrained new construction and a shift toward high‑quality, adaptable space should support demand and rents over the medium term.