Office Leasing Set to Increase Modestly in NYC, Skyrocket in San Francisco in 2025

New York City could see another steady year for office leasing in 2025, while San Francisco is poised to see leasing numbers skyrocket after its market hit rock bottom, according to a new report from software company VTS.

After 20 percent growth in new office demand nationally from 2023 to 2024, office leasing activity is predicted to rise 2 percent in New York City and a whopping 28 percent in San Francisco this year, according to VTS, which collects data from commercial real estate transactions to predict market trends.

New York City, which had the highest office demand of any major U.S. market last year, is likely to see 34.6 million square feet leased by the end of 2025, compared to the 33.7 million square feet leased in the city in 2024, according to the VTS forecast.

Meanwhile, San Francisco is set to see a total of 9 million square feet of office space leased this year, a considerable increase from the 7 million square feet leased in 2024 as the market continues to “climb out of a large post-COVID-19 deficit,” VTS said in its report.

“San Francisco is a market that has really, really struggled since the onset of the pandemic,” Ryan Masiello, co-founder of VTS, told Commercial Observer. “And really over the last 12 months, we’ve started to see a lot of stability in the sustained demand growth, and that’s why we think that it’s going to have such a higher percentage, just because it’s coming off such a low base.”

In addition, the West Coast city is set to see success this year as technology and artificial intelligence firms hunt for new office space — especially in California markets like the San Francisco Bay Area, which encompasses San Francisco proper and Silicon Valley, as CO previously reported.

AI firm OpenAI’s 486,000-square-foot lease at 1455 and 1515 Third Street in San Francisco’s Mission Bay neighborhood and AI startup Anthropic’s 230,315-square-foot deal at 500 Howard Street in the city’s Financial District are good indicators of what’s to come in 2025.

Masiello said return-to-office mandates from the likes of Amazon (AMZN), Starbucks, AT&T and Sweetgreen are also expected to make an impact on national office leasing this year, even as some companies have struggled to find enough space for returning workers.

“If we look at the growth that we’ve seen across the core U.S. markets in demand, we think that return to office is a big driver of that across every major market,” Masiello said. “Companies are taking a much harder stance on either introducing a new return-to-office policy or starting to take their old return-to-office policies a lot more serious.”

Across the pond in the U.K., office leasing predictions for 2025 aren’t as optimistic.

VTS predicts an 11 percent decline in office leasing activity in London, largely due to a lack of new demand in the leasing pipeline, the company said.

In fact, in 2024 office demand in London fell to its lowest average since 2020, representing the first time it has fallen behind New York City, VTS said. On the flipside, New York City experienced its best December office demand since the onset of the pandemic.

“London was a market that had a lot of stability coming out of the pandemic,” Masiello said. “Most of the office markets have remained really healthy because people went back to the office really fast.

“But London sort of rushed back to four or five days [in person], and maybe they’re starting to retrench a little bit on pushing people to get back with not as much flexibility,” Masiello added. “We think companies are starting to think about a little bit more flexibility there, and that’s perhaps going to impact some of the demand growth that we see.”

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