Despite ongoing geopolitical tensions and continued economic uncertainty in the U.S., the demand for office space is accelerating in many markets, according to multiple national real estate data providers. That demand extends to Southern California as well, corroborated by Voit’s research and boots-on-the-ground broker observations in our Q1 market reports (highlights can be found later in this post). The boost in demand is driven by a host of factors, including companies tightening RTO policies, a flight to quality as new office construction slows, and a selective surge in hiring for roles in AI, cloud computing, and cybersecurity. The heightened demand appears to be a continuing trend, as Yardi Matrix reports that the national office vacancy rate decreased to 17.8% through March, 210 basis points lower than in Q1 2025.
Nationally, office demand reached its highest level since before the pandemic, according to the latest VTS Office Demand Index (VODI) report, which measures office leasing demand nationally and locally. Office demand increased by 18% from the close of 2025 and 13% year over year. While the tech industry has been the primary driver of office demand growth, two other core office-using sectors, finance and legal, also posted double-digit demand gains quarter over quarter. The increase in demand comes despite a pronounced cooling of the labor market for office-using occupations, which is still down 2% from 2022, according to the Bureau of Labor Statistics. While a shrinking labor market for office users typically dampens office demand, it also gives employers the leverage to mandate more on-site work, which increases the demand for space.
Two California markets saw significant increases in demand: San Francisco and Los Angeles. San Francisco demand jumped by an eye-popping 70% from Q4 2025 to Q1 2026 and an even more astonishing 124% year over year, largely on the strength of being at the center of the AI boom. Los Angeles, which had posted year-over-year declines prior to Q1, saw demand reach its highest level since Q2 2024, with a 20% quarter-over-quarter increase. The VTS report notes that the demand in LA was highest in the legal and creative sectors, due in part to California’s recent expansion of film tax credits for the region.
“Despite the national surge, the local picture city-to-city remains quite nuanced,” cautions Ryan Masiello, Chief Strategy Officer of VTS, in a release. “The AI boom continues to be a dominant headline for office, and markets that lack a major tech presence, or are without a primary growth lever in another industry, are seeing declines in demand.”
Return to Office a Demand Driver
Citing a need for collaboration and culture, many companies are mandating as many as five days in the office, with 55% of Fortune 100 companies requiring a full-time return, according to a report by Careerscape. Workspace and space management provider Archie has compiled an updated list of companies and their RTO requirements, and some of Southern California’s largest employers have adopted stricter schedules effective in 2026, including Paramount/Skydance (expected to work on-site five days a week), and the Walt Disney Company and NBC Universal (four days on-site). Additionally, California state workers will be required to return to in-person work four days a week starting July 1, according to a memo from Gov. Gavin Newsom’s office, released last week.
Southern California Office Markets
Voit tracks the San Diego and Orange County office markets, and while vacancy remains well above historical norms, demand is increasing in both markets. Below is an overview of each market report, including analysis from a top broker.
San Diego
The Q1 vacancy rate of 13.61% remained virtually unchanged from Q4 2025 but increased by 63 bps year over year. The availability rate dropped slightly YOY to 16.35%. But the story for San Diego County remains the sky-high vacancy rate (34.02%) in the 16.2-million-square-foot Downtown submarket, despite a decrease from 35.80% in Q4 2025. Multiple office owners have just given up on the Downtown, selling buildings at steep discounts in recent months. The latest significant sale was the $103.5 million acquisition of two downtown San Diego office towers at $146 psf (a 53.7% discount from 2021 pricing) by the GANMI Corp., headed by former SoftBank executive Eric Gan. This follows the Irvine Company’s six-building exit from the Downtown in 2025.
The office markets outside Downtown, however, tell an entirely different story. The vacancy for 26.6 million square foot Central region is in single digits at 9.73%, including the 11.3-million-square-foot Kearney Mesa submarket at 8.76%. And the 8.4-million-square-foot Southern & Eastern Areas are almost half that figure at 4.85%. Driven by recent new construction, San Diego’s average asking office rent rose 2.6% year over year to $3.15 psf in Q1 2026. However, effective rates are down sharply from two years ago due to aggressive landlord concessions such as free rent and first-year promotional teaser rates.
Senior Vice President/Partner Kimberly Clark, Esq. of the San Diego office notes that “San Diego County’s office market continues to navigate a period of transition, shaped by evolving workplace strategies, uneven demand across submarkets, and broader economic uncertainty… While challenges remain, renewed leasing activity in late 2025 and early 2026, combined with adaptive leasing strategies, points toward a market that is gradually stabilizing rather than declining.”
Orange County
The OC saw a 103 bps drop in vacancy in Q1, from 14.55% in Q4 2025 to 13.52%, and a 196 bps year-over-year decrease from 15.48% in Q1 2025. Orange County’s office market recorded positive net occupancy growth of 292,601 square feet in Q1 2026, the third consecutive quarter of positive absorption and a sharp reversal from the negative 333,333 square feet posted one year ago. The average asking lease rate rose to $2.82 psf in Q1 2026, up from $2.70 psf in Q4 2025.
The recovery remains geographically narrow, however, and new construction is limited to two build-to-suit projects, keeping supply pressure well below historical norms. The question is no longer whether tenants will return, but how quickly the combined effects of corporate mandates and technology-driven demand will translate into broad-based occupancy gains. The defining issue for the market has shifted from the persistence of remote work to how AI and technology adoption will reshape the physical workplace. Broad-based demand recovery will continue into 2027, but the foundation for the next cycle is in place.
Orange County’s office market is showing signs of gradual stabilization,” writes Stefan Rogers, Senior Vice President/Partner in the Irvine office. “Vacancy has moderated from recent highs, and leasing activity remains steady. The recovery may be uneven, but the market appears to be entering a new phase — one shaped less by the immediate effects of the pandemic and more by the emerging influences on how, where, and why people work.”
In his analysis, Rogers provides a thoughtful take on the impact that AI will have on office space.
For a deeper dive into the individual office markets, visit the Voit Market Reports page. To learn more about how we can assist you with your commercial real estate needs, contact one of Voit Real Estate Services’ trusted commercial real estate advisors.