For decades, commercial real estate professionals have treated new business formation as an encouraging signal for the office market. More companies should eventually mean more employees, more desks and more leased square footage.

That relationship still exists, but it may be getting weaker.

A growing number of businesses can now reach meaningful revenue levels without building conventional employee organizations. Artificial intelligence, cloud software, digital distribution platforms and specialized contractors allow a founder to perform work that once required programmers, marketers, analysts, salespeople and administrative staff.

The result is a new kind of company: economically productive, commercially legitimate and potentially capable of generating substantial revenue, but unlikely to sign a traditional office lease.

For you as an office investor, lender, developer or property manager, this creates an important analytical problem. Headline business-formation statistics may continue rising even when the number of companies likely to employ office workers remains comparatively stable.

Business formation and office demand can no longer be assumed to move together automatically.

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The Traditional Office-Demand Model Started With Headcount

The conventional office-demand model is relatively straightforward.

A company forms, begins hiring and eventually needs a place for its employees to work. As revenue and payroll grow, the company expands into additional space. When this process occurs across thousands of businesses, employment growth produces positive net absorption.

Under that model, new business applications can serve as an early indicator. A surge in company formation suggests that more employers may emerge over the following several years, supporting demand for office space.

But the model depends on one critical assumption: successful companies become employers.

That assumption is now less reliable.

A business can form, attract customers, process millions of dollars in transactions and remain operated by one founder or a very small team. Even when the company needs additional expertise, it may purchase that expertise through software subscriptions, artificial intelligence tools, freelancers or outside service providers instead of hiring permanent employees.

The company may be growing economically without growing spatially.

Not Every Business Application Predicts an Employer

The distinction between a new business and a new employer is central to understanding the change.

The U.S. Census Bureau’s Business Formation Statistics track several different types of activity. The broad Business Applications series measures qualifying applications for Employer Identification Numbers. A narrower category, High-Propensity Business Applications, attempts to identify applications that are more likely to become businesses with payroll.

The Census Bureau bases that classification on characteristics such as corporate structure, stated hiring intentions, planned wage dates and industry. Actual employer formation is ultimately identified through the appearance of payroll tax liabilities.

These distinctions matter because an application for an EIN does not necessarily indicate that a company will hire employees, occupy an office or even require commercial real estate.

Recent data have made that difference more visible.

The Stripe Economics analysis found that overall U.S. business applications reaccelerated beginning in late 2024, while applications classified as having a high propensity to become employers remained comparatively stable. Stripe also found evidence that more solo businesses are reaching substantial revenue thresholds.

In Stripe’s proxy sample, more than twice as many solopreneurs earned over $1 million in 2025 as in 2023, while close to three times as many crossed the $5 million and $10 million levels. Stripe appropriately notes that its sample is an imperfect proxy, but the direction of the data is significant: revenue growth does not necessarily require proportional employment growth.

For commercial real estate analysis, that is the potential break in the chain.

AI Changes the Staffing Equation

A founder historically hired employees because no single person could perform every function required to build and operate a growing company.

Someone had to write software, prepare marketing materials, research customers, answer inquiries, analyze financial data, manage schedules, create presentations and coordinate sales. Even a relatively small organization could quickly require several specialized employees.

AI-enabled software changes the economics of those functions.

A founder can now use AI to:

• Draft and revise marketing content.
• Build preliminary financial models.
• Analyze customer and transaction data.
• Create software prototypes.
• Automate routine customer support.
• Prepare sales materials and proposals.
• Research markets and competitors.
• Manage administrative workflows.
• Generate reports, summaries and presentations.

The tools don’t eliminate every need for human expertise. They do, however, raise the amount of work one person can perform before hiring becomes necessary.

Stripe found a positive relationship between growth in its proxy for nonemployer business applications and industry-level AI adoption. It also reported that AI-influenced journeys accounted for nearly four times the share of Stripe sign-ups seen in January 2025. The findings do not prove that AI caused the entire rise in solopreneur activity, but they support the conclusion that AI is lowering capability barriers for solo founders.

This means a company may reach the revenue level that once supported 10 employees while operating with one founder, several software platforms and a network of independent contractors.

That company’s income statement may look increasingly substantial. Its office requirement may still consist of a home office and occasional meeting-room bookings.

Revenue Growth Can Bypass Payroll and Square Footage

Office demand has traditionally been tied more closely to employment than to revenue.

A company with $5 million in annual revenue and 30 employees generally needs more space than a company with $5 million in revenue and one founder. Revenue might indicate the ability to pay rent, but headcount determines how many desks, offices, conference rooms and support areas the business actually needs.

AI-enabled companies can direct growth spending toward operating inputs that do not create conventional space demand.

Software can replace internal departments

Instead of hiring an administrative team, a company may subscribe to automated scheduling, billing and customer-management platforms.

Instead of employing several junior analysts, it may use AI-assisted research and data tools.

Instead of building an internal marketing department, it may combine generative software with a specialized freelancer or agency.

Each decision increases software or contractor spending without producing another permanent workstation.

Contractors do not necessarily produce dedicated desks

A growing solo business may use designers, developers, bookkeepers, attorneys, virtual assistants and sales consultants. But those workers may be located in different cities or countries and work from their own homes or offices.

The business is supporting economic activity, but the associated real estate demand is fragmented across multiple locations. It may never appear as a conventional office lease under the company’s name.

Digital distribution reduces location dependence

Many AI-enabled companies sell software, information, digital services or online products. They don’t need storefronts, warehouses or customer-facing offices in each market they serve.

A founder can operate nationally or globally from a spare bedroom, small studio or coworking facility. Revenue can scale without the geographic expansion that once accompanied company growth.

Business-Formation Data Needs a More Careful Interpretation

You should not stop monitoring business formation. It remains a useful indicator of entrepreneurship, economic activity and potential tenant creation.

You should, however, stop treating the headline number as a direct forecast of office absorption.

The broad Business Applications series and the narrower employer-oriented measures answer different questions.

Business applications tell you whether entrepreneurial activity is increasing. High-propensity applications, planned-wage applications and projected employer formations provide more direct information about whether those businesses may create payroll jobs.

For office-market forecasting, you should compare several indicators rather than relying on one headline series:

• Total business applications.
• High-propensity business applications.
• Applications reporting planned wages.
• Projected employer business formations.
• Office-using employment growth.
• New payroll establishments by industry.
• Local professional-services employment.
• Office leasing activity by suite size.
• Tenant expansion and contraction rates.
• Flexible-space memberships and utilization.

The gap between total applications and employer-oriented applications may itself become an informative metric. A widening gap could indicate that entrepreneurship is increasing faster than conventional employer formation.

That would still be positive for economic activity. It simply wouldn’t imply the same volume of office demand that historical relationships might suggest.

You should also confirm that any time series you use has been adjusted for methodology changes. In February 2026, the Census Bureau published a revised High-Propensity Business Applications series that removed certain internet-sales applications because they historically had low transition rates to employer businesses. The revision was applied across the time series, reinforcing the importance of comparing consistently defined data.

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Office Demand May Shift Rather Than Disappear

The rise of solopreneurs does not mean these businesses will consume no real estate. It means they may consume it differently.

Home offices may capture the first stage of demand

A home office is often the default location for a solo founder. It has no separate commute, requires no long-term lease and produces little incremental occupancy cost.

For residential investors and developers, this may increase the value of floor plans with dens, spare bedrooms, sound separation, reliable connectivity and shared work amenities.

Part of the commercial workspace market may effectively migrate into residential real estate.

Coworking can replace the first conventional lease

A founder who needs professional surroundings may purchase one coworking membership rather than lease a 1,500-square-foot suite.

The business can then add or remove access as needed, use shared amenities and avoid the capital cost of furniture, technology and tenant improvements.

This turns office consumption into a service rather than a fixed asset commitment.

Meeting rooms may matter more than daily desks

Solo and distributed businesses may still need physical locations for client presentations, strategy sessions, product demonstrations or contractor meetings.

Demand may therefore shift toward bookable conference rooms, training rooms and temporary project space rather than dedicated daily offices.

Small flexible suites may become the expansion product

When a solopreneur finally outgrows a home office or coworking desk, the next step may not be a conventional five- or ten-year lease.

It may be a furnished private office, a two-person suite or a short-term managed space.

JLL’s flexible office research identifies growing demand for prebuilt, short-term space and shared conferencing as occupiers seek greater portfolio flexibility. JLL describes a broader shift from privately controlled long-term leases toward more flexible forms of office consumption.

Solopreneurs are only one part of that shift, but their growth may reinforce it.

Owners Should Rethink the Office Product

If you own or operate office property, the opportunity may not be to wait for every new company to become a conventional tenant. It may be to create products that capture smaller and less predictable requirements.

Divide space into smaller increments

Large floor plates may not align with businesses that add one or two workers at a time.

You can examine whether selected vacant areas can support smaller furnished suites, shared reception areas or modular layouts. The objective is to reduce the minimum commitment required to become a tenant.

Treat conference facilities as rentable inventory

Meeting rooms are often treated as tenant amenities. In a solopreneur-driven market, they may also become revenue-producing products.

A professionally managed building could offer hourly or daily meeting-room access to local businesses that don’t need permanent space.

This creates a relationship with potential future tenants before they are ready to sign leases.

Reduce friction at the point of entry

Traditional office leasing can involve brokers, proposals, legal review, security deposits, construction and months of lead time.

A one-person company may avoid that process entirely.

Standardized agreements, furnished inventory, transparent pricing and rapid move-in capability can make your building more accessible to businesses that value speed over customization.

Track users as well as tenants

A flex operator may lease space from you while hundreds of individuals and businesses use the property.

If you only track the operator as one tenant, you may miss valuable information about the companies entering the building, how frequently they use it and whether they are expanding.

Usage data can help you identify which members may eventually become direct tenants.

Lenders and Investors Need Better Demand Assumptions

The changing relationship between business formation and office demand should also influence underwriting.

A market with rapid growth in business applications may look entrepreneurial and economically active. But you should investigate whether that growth is producing payroll employment, office-using jobs and conventional leasing activity.

Ask more specific questions:

• Which industries are generating the applications?
• What percentage are likely to become employers?
• Are local office-using employment levels rising?
• Are new businesses hiring locally or using remote contractors?
• Is leasing demand concentrated in conventional space or flexible products?
• Which suite sizes are attracting tours and signed agreements?
• Are small tenants expanding into larger units?
• Does the property have a practical entry product for one- to five-person firms?

Underwriting models based on historical ratios between company formation, job creation and absorption may overstate demand if new businesses remain smaller for longer.

You may need separate assumptions for employer businesses, nonemployer businesses and flexible-space users.

The Relationship Is Weakening, Not Vanishing

It would be a mistake to conclude that business formation no longer matters to office real estate.

Some solopreneurs will eventually hire. Some will outgrow their homes. Others will need studios, private offices, collaborative space or client-facing locations. AI companies themselves may create significant office demand as they expand.

The more precise conclusion is that a new business no longer implies a predictable sequence of hiring and leasing.

Business formation may increasingly signal economic output without proportional headcount. Revenue growth may benefit software companies, contractors and residential workspaces before it benefits conventional office landlords.

That weakens the usefulness of a familiar leading indicator.

A Different Kind of Office-Demand Cycle

The current business-formation boom may be real. It may produce innovative companies, meaningful revenue and broader economic growth.

But you should not automatically translate every new business application into future occupied square footage.

AI allows founders to delay hiring, operate with smaller teams and purchase capabilities on demand. As a result, a company can become commercially successful before becoming an employer—and may never develop the office footprint that a similarly successful company would have required in the past.

For commercial real estate, the opportunity lies in recognizing where the demand is moving.

The next generation of businesses may need fewer permanent desks, but more flexibility. It may need a professional address, an occasional conference room, a coworking membership or a small furnished suite that can be occupied immediately.

Business formation and office demand are not becoming unrelated. The connection is becoming less direct, more fragmented and more dependent on the type of workspace being offered.

Your analysis—and your buildings—will need to reflect that change.

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