REAL ESTATE NEWS

Artificial intelligence companies have become the main driver of tech office leasing, accounting for almost half of all active tech square footage in the markets tracked by VTS, according to the firm's latest Office Demand Report.

The report shows that AI requirements are not only growing quickly but are also clustering in a handful of submarkets where availability is tightening despite elevated vacancy rates. For investors, that concentration is beginning to separate real winners from markets that see little benefit from the AI boom.

Nationally, demand for AI offices is up 85% year-over-year, VTS reports. In major AI hubs, the growth rate jumps to 179%, powered in part by a surge of private funding that is giving AI companies the balance sheets to lease large blocks of space. VTS cites CB Insights data estimating private funding for AI firms at 206 billion dollars in the first quarter of 2026 alone, almost matching the full-year 2025 total of 217 billion dollars.

From a tech demand perspective, AI is now the story. Across the markets VTS tracks, total tech office demand encompasses 1,333 active locations totaling 36.2 million square feet. AI firms account for 453 of those locations or 34% of tech demand by count and 16.8 million square feet or 46% of total tech square footage.

Concentrated Demand In A Few Corridors

While the headlines focus on overall tech and AI growth, the more important story for landlords and investors is where that demand is showing up. Of the AI locations, 91 are in the enterprise tier—spaces of at least 50,000 square feet—and these large leases account for 71% of all active AI square footage.

After three years of downsized tech renewals, these big requirements are not evenly spread across markets. VTS finds that almost three-quarters of enterprise-tier AI demand, 74%, is concentrated in just six submarkets: San Francisco Non-Core Central Business District, San Jose, Midtown and Midtown South in Manhattan, San Francisco South Financial District and Austin Non-Central Business District. San Francisco, Silicon Valley and New York together account for 41% of active AI requirements and 63% of active AI square footage.

That level of concentration is starting to move the needle on availability in those corridors, even as broader market vacancy remains high.

"Landlords and investors underwriting to market averages are mispricing both sides: despite high vacancy rates, concentrated AI demand is driving availability meaningfully lower in a handful of corridors, while the rest of the markets VTS tracks are seeing little AI benefit," VTS wrote.

Top Markets For AI Office Demand

The report's market-level data underline how sharply AI office demand is tilted toward a small group of cities. San Francisco ranks first, with about 5 million square feet of AI requirements, representing 29.7% of total demand in the sector within VTS-tracked markets. Tech demand in the city is up 169% year-over-year, while AI demand alone has surged 247%.

Silicon Valley is second, with 2.81 million square feet of AI demand, or 16.7% of the total, alongside 22% year-over-year growth in overall tech demand and 61% growth in AI demand. New York is third, with 2.74 million square feet of requirements; the market is seeing 109% year-over-year growth in tech demand and a 283% year-over-year jump in AI demand.

Austin ranks fourth with 1.19 million square feet of AI demand, accounting for 7.1% of the total across the markets VTS tracks. Tech demand there has grown 23% year-over-year, with AI growing at the same 23% pace. Northern Virginia follows with 968,000 square feet of requirements or 5.8% of total AI demand, 68% growth in tech demand and 169% growth in AI demand. Washington, D.C., has 745,000 square feet of AI demand, 4.4% of the total, with tech demand up 22% and AI demand up 7%.

Dallas–Fort Worth is seventh, with 608,000 square feet of requirements, equal to 3.6% of the total. However, tech demand in the city is down 20% year-over-year and AI demand is down 31%, positioning the market very differently from the leading hubs.

Atlanta has 474,000 square feet of requirements, 2.8% of the total, with tech demand down 23% but AI demand still up 58%. Denver stands at 450,000 square feet, 2.7% of total AI demand, with tech demand down 31% and AI demand down 17%. Boston rounds out the top ten with 399,000 square feet of requirements, 2.4% of the total and year-over-year declines of 34% in tech demand and 48% in AI demand.

What The AI Cycle Means For Investors

For investors accustomed to thinking about tech demand in broad market terms, the VTS data suggest a more targeted approach. AI tenants now account for a disproportionate share of tech leasing, especially at the enterprise level and their requirements are being concentrated in a relatively narrow set of submarkets.

Markets that host those corridors are benefiting from rapid rent absorption and falling effective availability, even while neighboring submarkets and secondary markets may see minimal AI-related activity.

VTS draws a parallel between the current cycle and the post–Great Financial Crisis period in San Francisco, when waves of well-capitalized tech tenants drove rapid growth and repositioned key districts. OpenAI, Anthropic and xAI have collectively raised tens of billions of dollars—with OpenAI alone having attracted 122 billion dollars, with Anthropic and xAI together securing 37.5 billion dollars. Altogether, AI platforms could play a similar role in today's office market cycle.

For landlords, the takeaway is that underwriting to market averages risks mispricing both vacancy and rent levels in AI-heavy corridors. For capital allocators, the data point toward focusing on the specific submarkets where AI tenants are active rather than assuming that "tech-driven demand" will lift all boats across a metro.

Source: GlobeSt/ALM