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Early-stage AI companies are driving office space demand in many established tech clusters, but Boston has remained notably absent from the surge.
BXP executives spotlighted demand by AI companies in San Francisco, New York and Seattle – but not Boston or Cambridge – as a key dynamic in future growth of the office market.
AI and tech leasing demand has risen to 80 percent in San Francisco, driven by early-stage AI companies, while established tech companies such as Google and Microsoft have paused expansion, BXP President Doug Linde said during a conference call today to discuss the REIT’s first-quarter financial statement.
“We are seeing additional absorption of office space growth from our clients and premier buildings,” Linde said. “Particularly in markets like San Francisco and Midtown South [in Manhattan], we’re seeing significant growth of new organizations, many of whose names and ideas didn’t exist five years ago.”
In March, Decagon leased 70,000 square feet at a BXP property in San Francisco. New York City is making inroads, as well: AI data cloud platform Snowflake, for example, leased 83,000 square feet in March at BXP’s 7 Times Square in New York City.
Greater Boston missed out on a surge in demand from the tech sector during 2025, according to a report on seven metros by real estate data researchers VTS. Boston and Los Angeles were the only two markets with no growth in tech office demand in 2025, while demand in San Francisco and Seattle shot up over 45 percent.
In Greater Boston, one major transaction was completed in October, when Lila Sciences leased 246,000 square feet at Alewife Park in Cambridge.
The net effect of AI upon BXP’s urban portfolios is largely positive, as trophy properties are insulated from job losses tied to AI replacing back office functions, BXP CEO Owen Thomas said.
On Monday, BXP reported first-quarter revenue increased 0.8 percent to $872.1 million compared with the same period in 2025. Net income totaled $101.6 million, up from $61.2 million during the first quarter of 2025.
Funds from operations, a key measure of a REIT’s performance, was $1.59 per share, down from $1.64 during the same period the previous year.
The nation’s largest publicly traded office REIT is benefiting from high occupancy rates in its top-tier urban properties, while continuing to divest non-core assets. Its Boston-Cambridge central business district portfolio continues to be a cornerstone, comprising nearly 33 percent of total NOI. New York and San Francisco contribute 23 and 16 percent of NOI respectively.
The 11.1 million square-foot Boston-Cambridge CBD portfolio is 98.8 percent leased, including trophy towers such as 200 Clarendon and the Prudential Center, which are 100 and 97 percent leased, and 11 properties in Kendall Square and mid-Cambridge that are 98.5 percent leased.
In Back Bay, due to the high occupancy rate, BXP is focusing on filling in small pockets of availability while beginning discussions with tenants with lease expirations in 2028 or later, Linde said. No new office construction has begun in the neighborhood, which would represent competition for large space blocks.
By contrast, BXP’s suburban Boston portfolio is 82 percent leased. It comprises 23 properties totaling nearly 4 million square feet.
Suburban Boston office leasing remains sluggish, according to recent brokerage research, prompting BXP and other developers to pivot to multifamily housing redevelopments. The office vacancy rate in Boston suburbs was 21.6 percent in the first quarter, according to CBRE, with under 1.9 million square feet of active tenant requirements.
BXP estimates it can develop 1.2 million square feet in Waltham, where it’s seeking approval to build up to 1,500 apartments in the Bay Colony and Waltham Weston Corporate Centers and land next to the 1265 Main St. retail development.
BXP would be a 50-50 partner in development of the sites, according to the quarterly report.
