Key Takeaways
- • U.S. office leasing reached 120 million square feet in Q1 2026, marking the strongest quarter since mid-2018 and exceeding pre-pandemic volume levels for the first time this decade.
- • Year-over-year leasing volume increased 25%, with Q1 2026 exceeding the 2015-2019 pre-pandemic average for the first time in this decade, signaling sustained market recovery momentum.
- • Transaction volume hit a decade-high with an exceptionally large number of lease deals executed, though deal sizes remain modest—growth is driven by quantity of transactions rather than large-scale commitments.
- • Nearly half of the 20 largest U.S. office markets have recovered to within 10% of pre-pandemic baselines over the past 12 months, with Charlotte and New York City leading recovery driven by financial services sector demand and AI-related technology leasing.
- • San Francisco and Manhattan posted particularly strong year-over-year performance, with leasing activity up 32.9% and 5.6% respectively, reflecting divergent regional recovery trajectories within major markets.
Summary
U.S. office leasing has demonstrated sustained recovery momentum through Q1 2026, with tenants executing new leases totaling 120 million square feet—the strongest quarterly result since mid-2018, according to preliminary data from CoStar Group. The 25% year-over-year increase represents a critical inflection point: this marks the first quarter this decade where quarterly volume exceeded the 2015-2019 pre-pandemic average, signaling that the office market has moved beyond modest recovery into territory that rivals the sector's historical performance baseline.
The composition of this recovery, however, warrants investor scrutiny. According to Phil Mobley, national director of office analytics at CoStar, "first-quarter volume was driven by an exceptionally large number of transactions rather than a resurgence of large deals." The number of lease transactions executed during the quarter reached a decade-high, indicating that growth is concentrated in smaller, fragmented deals rather than the large-footprint commitments that typically characterized pre-pandemic leasing patterns. This structural shift reflects ongoing tenant diversification and smaller average deal sizes in the post-pandemic office environment.
Regional performance remains uneven but increasingly broad-based. Nearly half of the 20 largest U.S. office markets have rebounded to within 10% of their respective pre-pandemic averages over the trailing 12 months. Charlotte and New York City lead the recovery cohort, supported by sustained demand from financial services institutions that have maintained elevated in-office attendance requirements and stable headcount levels. New York's recovery has been further buoyed by continued leasing activity from technology firms focused on artificial intelligence applications, diversifying the city's tenant base beyond traditional finance and professional services sectors.
Specific market data underscores divergent recovery speeds within major metros. San Francisco's leasing activity surged 32.9% year-over-year, while Manhattan posted a more modest 5.6% increase, reflecting the varied pace of demand recovery across gateway markets. These metrics suggest that while national-level statistics point to robust recovery, institutional investors should continue to differentiate between markets showing momentum-driven gains versus those demonstrating slower, more measured normalization patterns.
The composition of this recovery, however, warrants investor scrutiny. According to Phil Mobley, national director of office analytics at CoStar, "first-quarter volume was driven by an exceptionally large number of transactions rather than a resurgence of large deals." The number of lease transactions executed during the quarter reached a decade-high, indicating that growth is concentrated in smaller, fragmented deals rather than the large-footprint commitments that typically characterized pre-pandemic leasing patterns. This structural shift reflects ongoing tenant diversification and smaller average deal sizes in the post-pandemic office environment.
Regional performance remains uneven but increasingly broad-based. Nearly half of the 20 largest U.S. office markets have rebounded to within 10% of their respective pre-pandemic averages over the trailing 12 months. Charlotte and New York City lead the recovery cohort, supported by sustained demand from financial services institutions that have maintained elevated in-office attendance requirements and stable headcount levels. New York's recovery has been further buoyed by continued leasing activity from technology firms focused on artificial intelligence applications, diversifying the city's tenant base beyond traditional finance and professional services sectors.
Specific market data underscores divergent recovery speeds within major metros. San Francisco's leasing activity surged 32.9% year-over-year, while Manhattan posted a more modest 5.6% increase, reflecting the varied pace of demand recovery across gateway markets. These metrics suggest that while national-level statistics point to robust recovery, institutional investors should continue to differentiate between markets showing momentum-driven gains versus those demonstrating slower, more measured normalization patterns.
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