AI Likely to Challenge Office Sector for the Rest of the Decade

Volatile and ever-changing, AI technology promises to be a headwind for office space demand through 2030, according to Newmark in a new report titled “AI and the Future of Office: Quantifying Workforce Change and Space Demand Through 2030.” 

Just how much of a headwind is uncertain, but Newmark formulated a number of possible scenarios on a spectrum from a mild impact to something much more severe.

The report’s base case forecast sees office-using employment growth as essentially flat (up 0.3 percent) during the 2026-2030 period. Though seemingly not a great impact, historically that little growth is the exception rather than the rule: Since the end of World War II, U.S. office demand has rarely been flat or declined in any five-year period. In fact, the Great Recession is the notable exception, and demand has never dropped without an associated recession—and Newmark isn’t forecasting a recession over the next five years.

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The impact of AI on the wider office market comes against a backdrop of a tumultuous recent history for the office market, the report notes. Only recently has the market regained its footing after the partial shift to hybrid work, which drove 18 consecutive quarters of negative net absorption and pushed the U.S. office vacancy rate to a record 20.6 percent in Q2 2025.

Only five years ago, hybrid and remote work were seen as existential threats to the office sector, but in hindsight, hybrid work reshaped the office rather than erased it, Newmark notes. Even in the worst-case scenario, AI will not be an existential threat to the office sector, but it will put the squeeze on demand and fuel more quarters of negative absorption.

How much vacancy? It depends

The report posits that the U.S. office vacancy rate in 2030 will depend on how artificial intelligence reshapes office work and space demand, with a roughly 4 percentage point difference between the report’s most optimistic (moderate upside) and pessimistic (severe downside) scenarios.

In the moderate upside scenario, vacancy will actually be down 30 basis points relative to a control scenario with no explicit AI effect, falling to 19.5 percent, though that is still a historically elevated rate. By contrast, at the opposite end of the spectrum, vacancy rises by as much as 360 basis points above the control in the severe downside scenario. That would put the rate at 23.5 percent by 2030, a record-high for the U.S. office market.

Newmark’s base case has vacancy increasing 170 basis points relative to the control, or 10 basis points above the Q4 2025 level, at 21.5 percent. 

To calculate the possible vacancy rate, the Newmark report examined the relationship between office-using employment and occupied space. “As of 2025, traditional office-using jobs in the United States supported 192 square feet of occupied space per worker—a ratio that has held relatively steady in recent quarters and that we interpret as the post‑pandemic equilibrium following the normalization of hybrid work,” the report notes.

Newmark applied this ratio to projected office‑using employment levels to calculate total occupied space in 2030 in each scenario. Combining these figures with the outlook for total office inventory, based on known construction pipelines and delivery schedules, enabled the report to derive the implied vacancy rates under different AI adoption trajectories.  

Labor market sluggish, especially for office-using jobs

AI will be impacting a relatively sluggish U.S. labor market, which has seen relatively weak growth over the past two years. In 2025, the market was characterized by a low-hire, low-fire dynamic and office‑using employment was essentially flat, the report explained.

Most job growth during the year came from non‑office‑using sectors, which aren’t as exposed to AI disruption as office jobs, such as education and healthcare. These industries now employ about 13 percent more workers than before the pandemic. By contrast, the information sector still has fewer jobs than in February 2020.

Even among office-intense industries, AI’s impact will be varied. “ Near‐to medium‑term displacement risk is concentrated in entry‑level and highly automatable office‑using roles, heightening exposure for back‑office functions,” the report says.

“Conversely, higher‑skill and relationship‑driven office roles are more likely to be augmented by AI rather than replaced. As AI is more likely to dampen overall office space utilization rather than trigger wholesale upheaval, high‑quality, collaboration‑oriented office settings will be comparatively resilient, while commodity space will be more vulnerable.”

Though potentially negative, the impact of AI on office markets won’t be geographically uniform. In the immediate term, AI and adjacent industries such as cloud and data infrastructure, semiconductors and specialized hardware will generate new office demand, the report points out. 

But hardly everywhere. The demand spike is concentrated in the San Francisco Bay Area and is spreading into other tech-heavy markets, including Manhattan, Seattle, Los Angeles and Austin.