MGIC Q1 2026 Credit Quality and Default Rate Analysis

Impact of AI on BXP’s office leasing demand in key markets for 2026

Based on BXP’s Q1 2026 earnings commentary, AI is acting as a direct and measurable source of incremental office demand in BXP’s key markets for 2026—especially San Francisco and New York (Midtown South)—while BXP does not see evidence of AI job disruption materially weakening leasing in premier office assets.

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1) Core mechanism: AI is increasing absorption, not just “hitting demand”

BXP explicitly links AI to leasing activity despite “market anxiety” about AI and job creation. Management states there are “direct benefits by leasing space to AI companies in San Francisco, New York, and Seattle” and also indirect benefits from companies displaced by AI-fueled growth and from service-client demand supporting the AI industry. ¹

BXP also frames the office-demand cycle differently from the last major tech era: it argues this cycle shows “dramatic incremental office demand growth from new organizations that are developing AI” in San Francisco and “more recently in New York City.” ² Management adds that it is seeing additional absorption and significant growth of new organizations in markets like San Francisco and Midtown South, and that it has seen no evidence that AI-driven job disruption is occurring in premier office assets in its markets. ³

Conclusion on demand impact (2026): AI is a demand tailwind for BXP’s leasing performance in key submarkets, with both direct tenant wins (AI companies) and second-order spillovers (suppliers/services and displaced tenants). ¹²³

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2) San Francisco: AI is a dominant share of incremental leasing demand

BXP highlights that the largest AI-driven leasing demand is in San Francisco, and cites a quantified share of market leasing demand attributable to AI/tech tenants:

• Management notes that AI and tech leasing has steadily increased from 50% of total leasing demand to “57% to almost 80%” in Q1 2026. ⁴
• Separately, in earlier discussion of San Francisco, BXP referenced that there is “80% of demand in San Francisco coming from AI tenants” (raised as a question by an analyst in the call). ⁵
• BXP also points to strong underlying market absorption, citing CBRE reporting 3 million square feet of positive office absorption in San Francisco over the last seven quarters, including 1.4 million square feet in 2026. ²

BXP’s own leasing execution aligns with this backdrop:

• In Q1, BXP executed leasing volume of 1.14 million square feet total, and it describes San Francisco as a key focus where absorption is translating into leasing activity. ²
• For specific assets, BXP reports major San Francisco leasing at 680 Folsom and 50 Hawthorne, with 103,000 square feet leased during the quarter and another 63,000 square feet in early April. ⁴
• BXP also cites “acceleration in activity” in South of Market in San Francisco. ⁶

Conclusion for San Francisco (2026): AI is not only present; BXP indicates it is becoming a major share of leasing demand (with AI/tech reaching up to nearly 80% of demand in Q1 2026) and is supported by substantial positive absorption in 2026. ⁴²⁶

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3) New York (especially Midtown South): AI demand is accelerating year-over-year in 2026

BXP provides a direct data point for Midtown South:

• Management says “2026 captured as much AI demand in leasing as 2025 did” in Midtown South, and that AI demand in Midtown South is “accelerating” year over year. ⁷

In addition, BXP describes substantial Midtown South leasing progress tied to expanding AI clients:

• At 360 Park Avenue South, BXP completed leasing of six floors / 138,000 square feet bringing the building to 90% leased, and it reached agreement with an existing AI client to expand an additional floor, taking the building to 95% leased. ⁴
• BXP also reports strong leasing at Times Square Tower (including 85,000 square feet of currently vacant space) and at other Madison Park assets, illustrating that AI-related demand is translating into vacancy absorption in BXP’s New York portfolio. ⁴

Conclusion for New York / Midtown South (2026): AI leasing demand is at least comparable to 2025 and accelerating, and BXP shows this demand translating into executed leases and expansions at major Midtown South assets. ⁷⁴

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4) Other markets mentioned by BXP: AI is supporting leasing in Seattle as well

BXP states it is leasing to AI companies not only in San Francisco and New York, but also in Seattle. ¹

However, within the provided excerpts, the most specific quantification and market-by-market detail is for San Francisco and Midtown South. ⁷⁴

Conclusion for Seattle (2026): AI is a direct leasing beneficiary in Seattle per management, but the excerpts provided do not quantify the magnitude the way they do for San Francisco and Midtown South. ¹

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5) Why BXP expects AI to support premier leasing demand rather than suppress it in 2026

BXP’s argument is structural: AI-related hiring/disruption dynamics are not showing up as deterioration in premier office assets.

• Management says negative impacts of AI on jobs are more likely in support functions, which are less present in “premier workplaces” and in gateway markets. ¹
• It reiterates that it is seeing additional absorption and growth of new AI-oriented organizations in its key markets, and again emphasizes no evidence of AI-related disruption hurting leasing in premier office assets. ³

Conclusion on 2026 effect for BXP: AI is supporting leasing demand in the same “premier” segments that BXP specializes in, which helps explain why occupancy improvements are still forecast/achieved rather than reversed. ¹³

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6) Direct 2026 leasing/occupancy implications BXP reports (context for demand impact)

While the question is about demand impact, BXP’s reported leasing activity provides the “so what”:

• BXP executed leases on 700,000 square feet of vacant space and renewed/backfilled 235,000 square feet of 2026–2027 expirations in the quarter. ⁸
• BXP says it expects to pick up 670,000 square feet (about 150 basis points of occupancy) from remaining 2026 expirations if nothing else changes, targeting end-of-2026 occupancy of 89%. ⁸
• Management also says its occupancy ramp is on track, asserting confidence that its target of ~4 percentage points total occupancy improvement over 2026 and 2027 remains achievable. ⁹

These figures are consistent with AI-driven demand translating into real leasing outcomes in 2026’s leasing window. ⁸⁹

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Bottom line

For 2026, BXP’s disclosed view is that AI is a net positive driver of office leasing demand in its key markets—most notably San Francisco and New York (Midtown South)—with management citing both direct leasing to AI companies and indirect spillover demand, plus quantified indicators that AI/tech tenants represent a large share of leasing demand in San Francisco and that Midtown South AI demand is accelerating in 2026. ¹²⁷⁴

At the same time, BXP does not see evidence that AI job disruptions are materially weakening leasing in premier office assets, suggesting AI’s demand impact is concentrated where BXP is positioned (gateway/premier workplaces). ¹³