The artificial intelligence boom among cutting-edge tech companies in Silicon Valley is spreading across the country to include economic stalwarts such as Walmart, Amazon and IBM, helping to drive a surge in office leasing several years after a slowdown.
From bustling New York City to quiet Seattle suburbs, the improved leasing from the technology industry appears to be an encouraging sign for the office market after major workspace users such as Meta and Google consolidated space to cut costs. Office owners have also sought to recover from the hybrid work patterns ushered in by the pandemic that had led to tenants taking smaller spaces on average, according to industry professionals.
“Tech office leasing across the U.S. has increased since it bottomed out" in the fourth quarter of 2022 during a wave of tech industry layoffs, Colin Yasukochi, executive director of commercial real estate firm CBRE’s Tech Insights Center, told CoStar News. “We’re seeing tech companies lease office space in markets where there are clusters of tech talent including the San Francisco Bay Area, New York, Seattle, Toronto and Boston, to name a few.”
Stricter in-office requirements have also helped tech leasing. For instance, Amazon has been expanding its footprint in New York and other markets after acknowledging it didn’t have enough space to accommodate all the employees it had called back to company offices five days a week.
First-quarter U.S. tech office leasing rose 21% to 7.9 million square feet from a year earlier, representing 16.4% of total office leasing, according to Yasukochi. The strong start builds off momentum last year. The tech industry took an 18% share of all U.S. office leasing in 2024, up from 14.2% in 2023, he said.
It may not be a surprise that in the tech-dominant San Francisco market, the industry has represented 50% of the city’s total office leasing year to date, up from 47% in 2024 after peaking at 60% in 2017, he said. But it's more telling that in New York, the largest U.S. office market, tech leasing closed its best post-pandemic year in 2024 and this year has reached its highest level since 2000.
Still, while the tech sector appears to be rebounding, industry professionals said a full return to peak nationwide leasing records probably won't happen as quickly.
“There is clearly AI demand” in San Francisco, Douglas Linde, president of national office landlord BXP, said at the Nareit investor conference for real estate investment trusts in New York this month. “The Bay Area is clearly going to be the place where the AI ecosystem is at its strongest. [But] we are still not at a point where we're seeing the kind of demand that we saw from 2012 to 2019 with … lots of space being absorbed by large technology companies. So far, we're not seeing 10 unicorns taking half a million square feet of space.”
While large AI firms such as ChatGPT developer OpenAI are signing big leases, many deals are “pretty small,” with leases averaging about 10,000 to 50,000 square feet, he said.
‘Very different’ market
Even so, tech companies represented 29 of the 100 largest U.S. office leases signed last year, up from 11 in 2023, ahead of the finance and insurance sectors, according to CBRE.
This year, Amazon has already made its first New York office purchase since 2020 in Manhattan and signed one of Manhattan’s largest office leases. It’s also expanded in other markets, including Miami and Dallas, and has inked partnerships with flexible workspace provider WeWork.
Landlords also are getting more inquiries from prospective tech tenants. We are “talking to people … and having lots of conversations with different groups for space” in the San Francisco and Silicon Valley area, Barry DiRaimondo, chief executive of creative office space developer SteelWave, said in an interview, adding that the Bay Area demand is being driven by AI and AI-adjacent businesses.
“Twelve months ago, there were no conversations,” DiRaimondo said. It’s “a very different environment [from] 12 months ago. … The tech sector always reinvents itself. This boom has a heavy AI piece to it.”
AI-related companies have leased more than 5 million square feet of San Francisco office space over the past five years and are projected to take up to 16 million square feet between now and 2030, or 2.7 million square feet annually, according to CBRE.
The AI boom may cut the city’s first-quarter office vacancy rate of about 36% by half if the 16 million square feet is taken up by the AI-tied firms through 2030 and other firms keep their current level of occupancy, CBRE said.
Big 2025 leases
The AI-driven demand is popping up in more markets, with OpenAI, for example, taking some space vacated by Microsoft in Bellevue, Washington, near Seattle. The firm is fast expanding its footprint and opening offices in the Seattle area, New York, Paris, Brussels and Singapore.
AI vehicle software maker Applied Intuition, founded by former Google executives, has signed one of Silicon Valley’s largest office leases this year.
Traditional tech firms have also been on the hunt for space. IBM expanded its Manhattan office this year at One Madison Avenue as part of the flight-to-quality trend of tenants seeking top-tier buildings with high-quality amenities.
Retailer Walmart recently signed another big 2025 Silicon Valley office lease as part of its Bay Area tech unit presence.
The largest tech companies are still “optimizing the supply of office space they currently have relative to their workforce size and return-to-office policies,” CBRE’s Yasukochi said.
“These companies were the main drivers of office space absorption pre-pandemic and most have not yet entered expansion mode,” he said. “The cost of capital and finding tech talent are some of the top challenges to the tech office recovery.”