Demand for office space did not increase across the United States in January and February of this year. This might not seem surprising considering the office sector’s struggles. But it is significant.
Why? This marked the first time in 20 months that demand for office space did not increase on a year-over-year basis during the first two months of the year.
That’s one of the big takeaways from the latest VTS Office Demand Index, a report looking at the state of the U.S. office market during the first quarter of the year.
In better news, though, VTS reported that office leasing activity did rise during March. That helped erase the dip in office lease transactions in January and February. With that surge, office demand rose 4.6% in the first quarter of this year when compared to the same three months in 2024.
What caused the dip in leasing activity in the first quarter? VTS pointed to a growing uncertainty in the economy thanks to recent tensions in global trade. Declining job postings, slower hiring and broader concerns over unpredictable policy shifts likely played a role, too, according to VTS.
In compiling its reports, VTS calculates a single number that encapsulates the level of demand for office space. According to the latest data from VTS, national demand for office space in the United States stood at 68. That number is roughly two-thirds of the national office sector’s pre-pandemic level, showing just how far demand for office space has fallen in recent years.
As VTS points out, Job postings and hiring continued to fall in the first quarter, with job postings declining steadily across nearly all major sectors during the past two years.
The new hire rate — the percentage of employed workers who started their jobs within the past month — has dropped from around 4.5% in early 2022 to about 3.4% as of early 2025, a level not seen since the early 2010s.
“At first glance, a cooling labor market might seem like bad news for the health of the office sector — but the opposite could be true,” said Nick Romito, chief executive officer of VTS, in a statement. “In recent years, hiring surged, but employers had limited leverage to bring employees back to the office. Now, as jobs become harder to come by, employers are in a stronger position to require in-office attendance with less resistance.”
The recent slowdown in office demand is disproportionately impacting New York and Los Angeles, two markets that had previously led the recovery, VTS said. In contrast, cities that have lagged in the broader office market rebound, often due to higher rates of remote work with greater exposure to the tech sector, are now emerging as relative bright spots.
San Francisco, long a hub for the tech industry, which has been especially conducive to remote work, posted the largest year-over-year increase in office demand, with a 32% rise from March 2024.
New York City and Los Angeles were the only markets to record a year-over-year decline in office demand. Demand fell 4.7% in New York from March 2024. Even with that fall, though, the New York City market still boasts the highest overall demand for office space in the country, according to VTS.
Los Angeles saw a dip in office demand of 13% in the first quarter, though it still ranks as the city with the second-highest demand for office space, VTS reported.