NEW YORK--(BUSINESS WIRE)--After a prolonged 9-month surge in demand for office space in 2021 which defied typical seasonal patterns, new demand receded significantly in September. Down 17 percent from August to September, the seven-city VTS Office Demand Index (VODI) is now 28 percent lower than it was, on average, in the years leading up to the pandemic. The VODI tracks unique new tenant tour requirements, both in-person and virtual, of office properties in core U.S. markets, and is the earliest available indicator of upcoming office leasing activity, as well as the only commercial real estate index to explicitly track new tenant demand.
Likely factors that could explain the decline in new demand for office space include delta variant concerns and a delayed impact of resurging COVID-19 infection rates, typical seasonality, (though the pullback is more significant than in years past), and a surge of employers collectively shifting their entry into the market sooner, inflating demand for office space in the spring and summer of 2021 at the expense of the fall.
“While the decline in new demand for office space this month was noticeable, I don’t think it is a cause for concern. Demand this year has been predictably unpredictable and we should expect to see fluctuations from time to time as we slowly make our way to the other side of this,” said VTS CEO, Nick Romito. “As we head into the holiday season I predict that the volatility will continue.”
Most remote-friendly markets continue to struggle
New office demand in most of the remote-friendly cities--San Francisco, Washington and Boston--remains at around half of its 2018-2019 pre-pandemic average. In contrast, new office demand in the less remote-friendly cities of New York City, Los Angeles and Chicago sit at just above 80 percent of the pre-pandemic average. The outlier to the trend is Seattle.
In September, Seattle experienced a considerable decline in demand, down 13 percent month-over-month, but still had a relatively high VODI of 90 in September, the highest of all markets tracked. A core difference between Seattle and other more remote-friendly cities is the distinguished rapid local increase in office-using employment--the increase in office-using hiring increases the need for office space even though not all hires are working from an office. Comparing Seattle to San Francisco, a similar tech-dominated city, Seattle had an annualized office-using employment growth rate of 9.8 percent from April-August 2021 compared to San Francisco at 5.7 percent.
“Unlike what we have seen in the less-remote friendly cities that are thriving given the circumstances, new demand for office space in San Francisco, Washington, D.C. and Boston largely appears to have stalled,” said VTS Chief Strategy Officer Ryan Masiello. “What remains to be seen is if idling will become their new normal. If employment doesn’t ramp up similar to what we’ve seen in Seattle, it could be the case for quite some time.”
Less Remote-Friendly Cities |
More Remote-Friendly Cities |
||||||
VODI Cities |
Chicago |
Los
|
New York
|
Boston |
San
|
Seattle |
Washington,
|
Current VODI (September) |
85 |
82 |
81 |
54 |
52 |
90 |
48 |
Share of Remote-Friendly Jobs* |
32.4% |
31.4% |
33.1% |
37.8% |
42.3% |
38.7% |
42.5% |
Annualized Office-Using Employment Growth (Apr.-Aug.) |
-0.8% |
4.0% |
1.6% |
1.1% |
5.7% |
9.8% |
2.4% |
Month-over-Month VODI Change (%) |
-22.7% |
-15.5% |
-15.6% |
-16.9% |
-17.5% |
-13.5% |
-15.8% |
Month-over-Month VODI Change ( points) |
-25 |
-15 |
-15 |
-11 |
-11 |
-14 |
-9 |
Year-over-Year VODI Change (%) |
150% |
78.3% |
107.7% |
42.1% |
333.3% |
260% |
45.5% |
Year-over-Year COVID Change (points) |
51 |
36 |
42 |
16 |
40 |
65 |
15 |
All markets experience a decline in new demand in September
All core markets saw demand fall by anywhere from 13 to 23 percent from August to September, with Chicago seeing the largest decline. Chicago and Los Angeles, which briefly exceeded 2018-2019 pre-pandemic averages over the summer, have reverted to the levels that prevailed a few months earlier.
Washington, D.C. has emerged from a post-election surge of new office demand into a post-post-election “hangover.” After bottoming out with a VODI of 24 in July 2020, Washington, D.C.’s VODI plateaued until the presidential inauguration, and then increased very sharply, rising 196.9 percent post-election to a VODI of 95 in May. The rapid increase was primarily due to an influx of employers searching for space to support government-related work, something that is characteristic of administrations in transition. Since then it has declined rapidly, down 49.5 percent to a VODI of 48 as of September, the lowest rate of new demand of all core markets, but in line with remote-friendly San Francisco and Boston.
Four out of five building tours in NYC were in the highest quality spaces
In September 79.1, percent of tours in New York City involved Trophy and Class A office space. That is the highest rate since May 2021, though it is not meaningfully different from the 78.9 percent share in August. The share of tours in Trophy and Class A office space peaked at 92.3 percent in May 2020 when overall new demand for office space was at its lowest level.
About VTS
VTS is commercial real estate’s leading leasing, marketing, asset management, and tenant experience 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. VTS Rise is the industry’s most comprehensive tenant experience solution, offering occupiers, building operators, and visitors an immersive, tech-enabled experience.
More than 60 percent of Class A office space in the US and 12 billion 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.
