NEW YORK--(BUSINESS WIRE)--New demand for office space increased slightly in September after three consecutive months of losses according to the latest VTS Office Demand Index (VODI) analysis. The national VODI grew by two VODI points, from 46 in August to 48 in September. A VODI of 50 or below indicates the flow of new tenants seeking office space is running at less than half of its pre-pandemic pace in 2018 and 2019. 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.
Nationally, demand for office space increased four percent month-over-month in September despite slight seasonal headwinds. Prior to the pandemic, demand for office space tended to decline in September, falling 3.1 percent in September 2018 and 1.1 percent in September of 2019. Despite the slight increase in demand in September, the VODI has generally been trending downward in recent months amid rising interest rates and a cooling labor market.
“The verdict is still out on the anticipated depth of any upcoming recession. Combine this economic uncertainty with signs of a cooling labor market, and it’s no surprise employers are pumping the brakes on plans for office leasing,” said Nick Romito, CEO of VTS. “Demand for smaller office spaces in particular has remained steady. This could reflect a dynamic where smaller tenants delay leasing plans while larger tenants shrink their requirement size, making up for lost demand in the small-space category.”
Locally, all markets with the exception of New York City experienced relatively modest, single-digit fluctuations in September. Demand for office space fell 2.5 percent in San Francisco, 6.1 percent in Boston, 6.5 percent in Chicago, and 7.3 percent in Los Angeles. Demand in Washington, D.C. grew 1.6 percent, and stayed flat in Seattle at a VODI of 44.
New York City was the outlier in September. After a sharp decline from a VODI of 80 in May to 44 in August, demand for New York City office space regained 10 VODI points in September, a 22.7 percent increase month-over-month making up nearly half of its prior four month loss. This bounce back was driven largely by an increase in demand for mid-size spaces in September.
“Demand for office space is still well below its pre-pandemic levels, but after a year of volatility and declining demand over the past few months, September’s relatively modest changes bring some welcome stability to the market,” said Ryan Masiello, Chief Strategy Officer of VTS. “The steadiness of Seattle is particularly notable since it’s typically the most volatile VODI market analyzed. Its steadiness, alongside the minor fluctuations in other markets, signals a broader consistency in demand for office space this September.”
VTS Office Demand Index (VODI)
National |
CHI |
BOS |
N.Y.C. |
S.F. |
L.A. |
D.C. |
SEA |
|
Current VODI (September) |
48 |
43 |
31 |
54 |
39 |
51 |
62 |
44 |
Month-over-Month VODI Change (%) |
4.3% |
-6.5% |
-6.1% |
22.7% |
-2.5% |
-7.3% |
1.6% |
0% |
Month-over-Month VODI Change (pts.) |
+2 |
-3 |
-2 |
10 |
-1 |
-4 |
+1 |
0 |
Quarter-over-Quarter VODI Change (%) |
-23.8% |
-35.8% |
-32.6% |
-20.6% |
-23.5% |
-30.1% |
0% |
-20% |
Quarter-over-Quarter VODI Change (pts.) |
-15 |
-24 |
-15 |
-14 |
-12 |
-22 |
0 |
-11 |
Year-over-Year VODI Change (%) |
-33.3% |
-49.4% |
-42.6% |
-33.3% |
-25% |
-37.8% |
29.3% |
-51.1% |
Year-over-Year VODI Change (pts.) |
-24 |
-42 |
-23 |
-27 |
-13 |
-31 |
+14 |
-46 |
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