NEW YORK--(BUSINESS WIRE)--Demand for office space closed out the second year of the COVID-19 pandemic down 47.1 percent from February 2020, the last month prior to the declaration of the pandemic. This is despite favorable fits and starts that once had the VTS Office Demand Index (VODI) at 87 percent of normal in Summer 2021 after bottoming out in June 2020 at 16 percent of normal. 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.
New demand for office space declined modestly in February, marking the fourth consecutive month of little to no monthly change to the VODI. However, cumulatively the national VODI is down 9.8 percent over the same period. Currently at a VODI of 55, demand for office space is down 5.2 percent month-over-month and down 9.8 percent quarter-over-quarter, but is up 31 percent year-over-year.
“February is typically the first month of the year when demand for office space picks up in earnest, but February 2022 was anything but typical,” said Nick Romito, CEO of VTS. “We believe that between recent record-breaking COVID-19 infection rates and general economic uncertainty, the typical seasonal rise in demand may be delayed. That said, even with a delay, it is possible that the downward pressure of hybrid work patterns will mute any demand spikes.”
Los Angeles, Chicago and Seattle have the best pandemic recovery thus far
Two years after the emergence of the COVID-19 pandemic, all core markets are seeing demand levels well below what they were the month prior to the onset of the pandemic. However, Los Angeles, Chicago and Seattle have fared much better than Boston, New York, San Francisco and Washington, D.C. where demand for office space is still down by 50 percent or more from pre-pandemic.
Seattle and San Francisco, two cities often characterized by their similar tech backbones, have experienced very different recoveries. Two years after the start of the pandemic, Seattle is back to 70 percent of normal (62.5 percent of pre-pandemic) while San Francisco is only back to 30 percent of normal (38 percent of pre-pandemic) and is also the only core market to fully erase the traction they made in the past year. “Normal” is the average rate of new demand in 2018-2019 while pre-pandemic refers to its rate in the month prior to the WHO declaration of the global pandemic.
“When we look at the disparity between Seattle and San Francisco, two things jump out: the presence of non-tech players in the market and the cost of living in each area,” said VTS Chief Strategy Officer Ryan Masiello. “Our data suggests that Seattle has become less reliant on prospective tech tenants throughout the pandemic, whereas in San Francisco, the reliance is largely unchanged. Given that the typical home value in the San Francisco area is nearly double that of the Seattle area, it is quite possible that San Francisco jobs are moving out of the area more often than in Seattle, and that companies are not planning for them to come back into the region or the office at all. In Seattle, while the cost of living is still high, it is more reasonable and employers may have greater faith in the ability to bring workers back into the office.”
VTS Office Demand Index (VODI)
|
National |
BOS | CHI |
L.A. | N.Y.C. | S.F. | SEA | D.C. |
Current VODI (February) |
55 |
40 |
56 |
71 |
61 |
30 |
70 |
60 |
Pre-pandemic VODI (February 2020) |
104 |
94 |
78 |
96 |
121 |
79 |
112 |
126 |
Two-year VODI change (%) |
-47.1% |
-57.4% |
-28.2% |
-26% |
-49.6% |
-62% |
-37.5% |
-52.4% |
Two-year VODI change (points) |
-49 |
-54 |
-22 |
-25 |
-60 |
-49 |
-42 |
-66 |
Month-over-Month VODI Change (%) |
-5.2% |
5.3% |
-16.4% |
-5.3% |
3.4% |
-33.3% |
6.1% |
1.7% |
Month-over-Month VODI Change (points) |
-3 |
2 |
-11 |
-4 |
2 |
-15 |
4 |
1 |
Year-over-Year VODI Change (%) |
31% |
33.3% |
64.7% |
22.4% |
29.8% |
-9.1% |
55.6% |
33.3% |
Year-over-Year VODI Change (points) |
13 |
10 |
22 |
13 |
14 |
-3 |
25 |
15 |
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