For the first time since the pandemic upended the office sector, the leasing data no longer needs an asterisk. According to Savills’ newly released State of the U.S. Office Market report, occupiers leased 127.3 million square feet of office space in the first half of 2026, the strongest first-half total since 2019 and 13 percent ahead of last year. The second quarter alone accounted for 66.1 million square feet, which Savills notes was “the strongest quarter on record since Q2 2019.” Perhaps more telling, that figure ran about 9 percent above the average quarterly pace set between 2017 and 2019, meaning demand is not just recovering toward pre-pandemic norms, it is exceeding them.

The firm attributes much of the momentum to artificial intelligence companies, which have “generated net new leasing activity” rather than simply reshuffling existing footprints. Legal and financial services firms, two industries that never wavered much on in-office work, round out the most active sources of demand. The quarter’s transaction list reads like a roll call of those sectors: Palo Alto Networks renewed 940,564 square feet in Santa Clara, law firm Simpson Thacher & Bartlett committed to a 916,000 square foot relocation near Grand Central, and Anthropic extended on 241,628 square feet in San Francisco’s Financial District South. The City and County of San Francisco itself expanded by more than half a million square feet in SOMA.

San Francisco’s appearance on that list is not incidental. The market that suffered the deepest pandemic-era collapse now ranks first among major metros in leasing activity relative to inventory, at 14.7 percent over the trailing four quarters, with volume up roughly 35 percent year over year. The city also posted the largest annual gain in physical office attendance of any major market, with building visits jumping 40 percent year over year, according to Placer.ai data cited in the report. Miami still leads the country in absolute attendance at 94 percent of its January 2020 baseline, but the direction of travel in San Francisco is what should catch the attention of anyone holding or pricing assets there.

The supply side of the ledger explains why landlords with the right product are regaining leverage. Overall availability fell to 22.7 percent in the second quarter, down from 24.5 percent a year ago, and nearly 82 percent of tracked markets saw availability decline year over year. Sublease space, the overhang that haunted the market for years, has dropped to 105.6 million square feet, down 40 percent from its late 2023 peak, though still about a third above pre-pandemic levels. Meanwhile the construction pipeline has thinned to a trickle, with projected 2026 deliveries at roughly a quarter of the pre-pandemic peak. Trophy Class A availability in gateway markets tightened to 17.2 percent, versus 24.8 percent for non-trophy Class A, and Savills reports Class A demand has climbed 35 percent since mid-2024. Scarcity at the top is doing what scarcity does: average asking rents ticked up to $44.22 per square foot.

The report’s most interesting analytical thread is what it calls an increasingly granular market, with occupiers evaluating “individual buildings and micro-locations rather than broad submarkets alone.” In nearly every metro, the rent spread between the most and least expensive submarket has widened faster than market averages would suggest. Walkability, transit access, amenities, and proximity to clients now function as pricing variables in their own right. For owners, that means the difference between a well-leased building and a distressed one can come down to a few blocks.

Capital markets are following the leasing recovery, though at a more cautious pace. First-half investment volume rose 15 percent year over year even after a slower second quarter that produced $18.7 billion in sales. Values have now posted five consecutive quarters of year-over-year gains on the MSCI price index, and Savills observes that investors have “grown more accustomed to elevated interest rates,” which is compressing the hesitation period between rate volatility and deal execution. Debt remains available, but selectively, flowing to high-quality assets while much of the broader market works through what the report describes as an ongoing pricing and capital markets adjustment.

That adjustment is about to face its sternest test. Years of loan extensions have pushed a concentrated wave of office maturities into 2026 and 2027, and the refinancing math remains punishing for owners of commodity product carrying pre-2022 debt. Cap rates averaged 7.7 percent in the second quarter, up from 6.7 percent in 2019, while the 10-year Treasury sits near 4.7 percent versus 2.1 percent back then. Cumulative office loan distress trails only multifamily among property types, and while troubled balances declined over the quarter, the report flags landlord financial health as a due diligence item for tenants, not just lenders. Understanding a building owner’s capital stack has become part of site selection.

The macro backdrop tempers the celebration. GDP growth is running at a sluggish 1.5 percent, inflation is holding around 3.5 percent, and payroll growth is moderating. Savills makes the provocative observation that a cooling labor market may actually accelerate the office recovery by shifting leverage toward employers and prompting stricter attendance mandates. Nationwide office visits reached 71 percent of pre-pandemic levels in June, and midweek attendance in several markets now approaches or exceeds 2020 baselines even as Fridays lag.

The takeaway for owners, lenders, and occupiers is that the office market has split into two markets that happen to share an asset class. One is tightening fast, commanding rent growth, and attracting debt capital. The other is still repricing, still refinancing, and still shrinking. The leasing recovery is real, but it is being distributed by building, not by market.

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