San Francisco is still on its rebound, with office demand set to skyrocket for the second year in a row.

In 2026, the City by the Bay is expected to see its office leasing activity total 12.8 million square feet, representing a year-over-year growth of 15 percent, according to a new report from software company VTS. Last year, VTS predicted tenants would lease 9 million square feet in San Francisco. They ended up taking 11.1 million — a 59 percent jump from the year prior.

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Meanwhile, New York City’s office leasing activity is set to reach 39.8 million square feet, a 6 percent year-over-year increase. Gotham also exceeded expectations in 2025, with total office leasing of 37.5 million square feet, compared to VTS’s predicted 34 million square feet. (VTS predicts office demand by the size and nature of new tenants entering the market, using existing tenant demand data to make forecasts.)

“[San Francisco and New York City are an] important barometer for the key industries they represent,” Max Saia, senior research adviser at VTS, told Commercial Observer. “You could make the case that New York, just given its sheer size, is such a bellwether for the finance industry in particular, but also legal and tech and creative.

“Whereas San Francisco, with all the new AI companies and tenants, it’s just such an important barometer for the state of the tech market as a whole and how that’s translating, or not, to office leasing demand,” Saia added.

Following the end of the COVID-19 pandemic, San Francisco has seen an enormous AI-fueled expansion in leasing in the tech sector. In fact, the city claimed 14 of the largest U.S. office leases by square footage in 2025, totaling 4.3 million square feet, according to a CBRE report released last week. And 10 of those 14 leases were signed by tech companies and accounted for 58 percent of the 5.7 million square feet that tech companies leased across the entire country, the report found.

That momentum has already carried over into 2026, as AI firm Anthropic signed a lease for 420,000 square feet at Downtown San Francisco’s 300 Howard Street in January, according to VTS’s report. OpenAI also now occupies nearly 1 million square feet across Mission Bay.

“There’s a lot of tech demand flowing, and there’s a lot of tech demand currently in the market,” Saia said. “And so that gives us quite a bit of confidence. But we also do know that there is one camp of market participants that is a little bit weary of: Are we in a bubble? Is the capex behind all this sustainable? So [our prediction] does factor in both those views, but it’s primarily rooted in just our data first and foremost. It’s predominantly still a tech growth story, as far as I can tell.”

VTS’s report acknowledges that a pullback in AI funding could significantly reduce demand in San Francisco’s office sector, as the city is heavily reliant on a single sector: tech. New York City, on the other hand, has a wide range of tenants taking its office space.

New York City’s predicted 6 percent growth this year is due to its leasing strength by financial services tenants, “flight-to-quality dynamics, and sustained return-to-office momentum,” the report said.

Notable large office leases completed in New York City in 2025 included J.P. Morgan Chase’s expansion to nearly 500,000 square feet at 390 Madison Avenue even after opening its headquarters at 270 Park Avenue, Citadel’s commitment for 850,000 square feet at 350 Park Avenue, and trading firm Jane Street Capital’s expansion to nearly 1 million square feet at 250 Vesey Street.

“New York’s obviously much closer to its pre-pandemic totals than most other markets are,” Saia said. “You know, pick your metric. There’s a lot of demand in the market. It did grow a decent amount year-over-year, and so we’re expecting a continuation of that.”

Isabelle Durso can be reached at idurso@commercialobserver.com.