2026 Biannual Office Market Report: Part Three

The office market's recovery is real, but it is resting on a narrow base. Seven of ten gateway markets now rate as recovering in Class A, up from four a year ago, and AI tenants account for 51.1% of all TAMI leasing. Meanwhile, Class B/C has five markets in decline, and Prime Class A starting rents outside New York City and San Francisco sit below their Q4 2024 peak. Check out the full insights in the 2026 Biannual Office Market Report.

Concession Ratios Fell in 2026, Nearing 2019 Levels for Both New and Renewal Deals

The average concessions ratio for new leases averaged 16.5% in 2019, climbed to a peak of 19.9% in 2023, and has fallen back to 2019 levels as of 2026 through Q2. Renewals took a different path, rising from 11.7% in 2019 to a peak of 15.8% in 2025 before dropping to 12.1%. However, markets have not converged in the same way. Chicago sits furthest above its 2019 level, at 24.0% against 18.1%, a gain of 590 basis points, while Boston added 450 basis points to reach 16.2%. New York City and San Francisco each rose 140 basis points to 15.2%. Dallas-Fort Worth is the only one of the five below where it started, easing 30 basis points to 15.8%. Of the five markets with the highest concession ratios in 2026, four remain above their 2019 levels, leaving the overall return to 2019 dependent on markets outside that group.

Free Rent Eased at the Top of the Market in 2026, but Class B/C Held Flat

Free rent has turned for the first time since the pandemic, and the retreat is concentrated at the top of the market. Prime Class A averaged 5.8% of lease term in 2019, climbed to a 2025 peak of 8.4%, and eased to 7.7% in 2026 through Q2. The rest of Class A traced the same arc, 5.0% to 7.8% to 6.6%. Class B/C, however, has not retreated, holding at 6.4%. Notably, the ranking against 2019 inverts. Class B/C added 217 basis points to its free rent ratio of term while its work value rose the least, up 30.2% to $55.13 per square foot. Prime Class A added 186 basis points, with work value up 55.2% to $111.80 per square foot. The work value gap between Prime Class A and Class B/C has widened from $29.71 to $56.67 per square foot since 2019.

TAMI Leasing Returns to Its Prior Peak With AI Tenants Supplying the Entire Gain

AI tenant leasing activity surged to 13.6% of total leasing volume in 2026, up from 4.7% in 2025 and the highest share in the period analyzed since 2020. TAMI, outside of AI tenants, however, continued to soften, falling to 13.0%, its lowest reading of that period and well below the 2021 peak of 24.4%. AI tenants now account for 51.1% of all TAMI leasing, up from 20.2% in 2025. Combined, non-AI TAMI and AI tenant leasing reached 26.6% of activity, the strongest share on that basis and above the prior high of 26.0% set in 2021. This suggests AI companies are not simply adding to overall leasing demand but are increasingly filling the gap left by non-AI TAMI tenants, so the overall TAMI sector's new high is more concentrated in a single segment (AI) than its 2021 peak.

Three Coastal Markets Captured 77.1% of TAMI Leasing in 2026, Up From 30.4% in 2023

TAMI leasing has increasingly concentrated into three coastal markets. New York City, San Francisco, and the Bay Area together accounted for 77.1% of TAMI new leasing activity through the first half of 2026, up from 64.0% in 2025 and 46.7% in 2024. That compares to a 30.4% trough in 2023 and 47.5% in 2019. New York City alone held 38.1% of 2026’s new activity, with San Francisco and the Bay Area contributing a combined 39.0%. A handful of large deals account for much of the shift. In New York City, Ramp extended and expanded into 285,303 square feet at 28-40 West 23rd Street, and PayPal took 260,872 square feet at 345 Hudson Street. Anthropic signed 412,875 square feet at 300 Howard Street in San Francisco, and Pinterest leased 125,100 square feet at 285 Sobrante Way in the Bay Area.

AI Tenant Lease Term Length Surged in 2026, Nearly Closing a Multi-Year Gap With the Broader Market

AI tenant lease term averages fell from 71.0 months in 2020 to a trough of 49.2 months in 2024, a 31% decline, while all other tenants held a steady 80 to 84 month range. That volatility reversed abruptly in 2026, when the average AI tenant lease term jumped to 80.3 months, within 5% of all other tenants' 84.4 months and the closest alignment of the full period.

Starting rents tell a different story. AI tenants have paid a premium over all other tenants in every year measured, and that premium persisted even as terms converged. In 2026, AI tenant starting rent reached $89.01 per square foot versus $75.21 per square foot for all other tenants, an 18.3% spread. However, the premium has narrowed from 23.2% in 2020, as all other tenants' rents grew faster on a percentage basis.

Check out the full insights in the 2026 Biannual Office Market Report.