NEW YORK--(BUSINESS WIRE)--While COVID-19 cases are no longer an inhibitor of demand for office space, the pandemic has fundamentally changed the way we work, and the effects are being felt in the office leasing market. Markets with a greater percentage of remote-friendly jobs are recovering more slowly while the opposite is true for markets with fewer remote-friendly jobs.
Some of that change is likely to persist in the interim, with more pronounced implications for cities that have a large share of remote-friendly jobs including Seattle, Boston and San Francisco, consistent with the picture emerging from the VTS Office Demand Index (VODI). The VODI tracks tenant tours, both in-person and virtual, of office properties across the nation, and is the earliest available indicator of upcoming office leases, as well as the only commercial real estate index to explicitly track tenant demand.
In Seattle, Boston, and San Francisco, the share of jobs that are remote-friendly is among the highest in the nation, and not coincidentally those markets have also recovered the least from their pre-pandemic level of demand, still down 39, 43 and 46 percent from their 2018-2019 average, respectively. In contrast, markets with a substantially lower share of remote-friendly jobs, Chicago, New York and Los Angeles, are only down 14 and 15 and 24 percent from their pre-pandemic values, respectively. The figures for remote-friendly job shares are drawn from a study by Apartment List which builds on prior academic work (Dingel & Neiman (2020).
Washington, D.C., an exception to the pattern with a high rate of remote-friendly jobs and a further-along recovery, has a large share of government employers who may be less willing to keep remote work arrangements in place compared to employers in Boston, San Francisco and Seattle.
“The pandemic didn’t just change the way we work, it changed the way we live. Many workers have found value in remote or hybrid work and may be reluctant to go back to the way life was pre-pandemic, said VTS CEO, Nick Romito. “In cities with higher rates of fully-remote jobs, hiring and retaining talent means employers will need to provide choices and flexibility - including fully-remote and fully in-office.”
VTS Office Demand Index (VODI) |
||||||||
|
National |
BOS |
CHI |
LA |
NYC |
SEA |
SF |
DC |
Share of Jobs that are Remote-Friendly |
29% |
38% |
32% |
31% |
33% |
39% |
42% |
42% |
Pre-pandemic Benchmark* (avg. VODI in 2018-2019) |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
100 |
May 2021 VODI (current) |
75 |
57 |
86 |
76 |
85 |
61 |
54 |
81 |
Current Difference from Pre-pandemic Benchmark (%) |
-25% |
-43% |
-14% |
-24% |
-15% |
-39% |
-46% |
-19% |
Year-to-Year VODI Change |
+60 |
+18 |
+68 |
+62 |
+80 |
+46 |
+51 |
+46 |
Year-over-Year VODI Change (%)** |
400% |
46.2% |
377.8% |
442.9% |
1600% |
306.7% |
1700% |
131.4% |
Month-to-Month VODI Change |
-7 |
-5 |
4 |
0 |
-12 |
-19 |
-10 |
-7 |
Month-over-Month VODI Change (%) |
-8.5% |
-8.1% |
4.9% |
0% |
-12.4% |
23.8% |
15.6% |
8% |
*The level of the VODI is set so that its average during 2018-2019 equals 100. That level conveniently also serves as the pre-pandemic benchmark, as it reflects the typical level of office demand in the period preceding the pandemic. |
**April 2020 was approximately the pandemic trough; exact timing varies by market. |
Nationally, following a particularly sharp burst of recovery in early 2021, demand for office space took a breather in May. After rising 173 percent in the first four months of the year, demand for office space receded modestly in May, down 8.5 percent from April, but its level remains 5 times higher than the May 2020 pandemic low. The decline, likely fueled by a seasonal lull and an easing of pent-up demand, marks a reversion to office demand’s normal see-sawing behavior.
“Demand for office space tends to follow seasonal patterns; it should not be concerning that most markets saw demand for office space taper in May,” said VTS Chief Strategy Officer, Ryan Masiello. “Depending on the market, we anticipate that demand will continue to fluctuate this summer before rising again in August and September.”
As of May, more than half of the markets covered were within 25 percent of their pre-pandemic benchmark level--a level that more closely resembles pre-COVID-19 normalcy. All markets, with the exception of Chicago and Los Angeles, saw demand for office space recede in May with Seattle losing the most ground, down 24 percent during the month.
At a VODI of 86, Chicago, a market that has lagged behind all others on the march to recovery, is now the closest of all markets to its pre-pandemic level. Chicago is also the only market to see an increase in demand for office space in May, though the monthly increase has tapered from previous months. Demand for office space in Chicago is propped up by the need for physical space for a higher percentage of roles that are not classified as remote-friendly. In addition, the materialization of pent-up demand in Chicago may have been delayed a bit longer than elsewhere owing to the cold winter climate, which is now providing some extra tailwind in May.
Seattle also has a relatively high share of remote-friendly jobs, which is slowing its office demand recovery. In addition, Seattle was the only city covered by VODI to experience a drop in office-using employment in May. That said, office demand in Seattle has been volatile in the past, and the current decline is modest in comparison to the city’s office demand fluctuations in the years immediately preceding the pandemic.
About VTS
VTS is commercial real estate’s leading leasing, marketing and asset management platform where the industry comes to make deals happen and real-time data comes to life. The VTS Platform captures the largest first-party data source in the industry, which delivers real-time insights that fuel faster, more informed decision making and connections throughout the deal and asset lifecycle. VTS Data, the industry’s only forward-looking market dataset, and VTS Market and Marketplace, the industry’s first integrated online marketing solution, give landlords, brokers, and tenants unparalleled visibility into real-time market information and the direct connectivity to execute deals with greater speed and intelligence at every point in the planning, marketing, leasing, and asset management cycle.
More than 60% of Class A office space in the US and 12B square feet of office, retail, and industrial real estate globally is managed on the VTS platform. VTS’ user base includes over 45,000 CRE professionals including respected industry leaders like Blackstone, Brookfield Properties, LaSalle Investment Management, Hines, Boston Properties, Oxford Properties, JLL, and CBRE. To learn more about VTS, and to see our open roles, visit www.vts.com.
