Downtowns Recover Faster When Employees are Required to Come into the Office

As we move further from the depths of the pandemic, it has become apparent the cities seeing a faster downtown office market recovery have two things in common: local employers that are more likely to require employees to come into the office and cities which have seen more growth in job postings than other cities tracked in the analysis, according to the VTS Office Demand Index (VODI) monthly report. 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.

The office markets recovering the fastest are New York, Los Angeles, and Chicago with New York and Los Angeles now essentially back at their 2018-2019 average demand velocity. Conversely, San Francisco, Boston, Seattle, and Washington, D.C., which are experiencing a slower recovery, have some of the nation’s highest shares of remote-friendly jobs and three of the four have a lower rate of job postings than their counterparts.

*Data on remote-friendly jobs is attributed to a study by Apartment List which builds on prior academic work (Dingel & Neiman (2020).

** Data on job postings relative to pre-pandemic is attributed to a recent study by Indeed which tracked the percent change in job postings between February 1, 2020 and June 25, 2021.

“Employers are grappling with how to handle the future of work — do you make employees come back, offer hybrid opportunities or go fully remote? While it’s not our place to say that every company should bring their employees back into the office full-time, we can say that there is a clear distinction in recovery between cities depending on how remote-friendly their jobs are,” said VTS CEO, Nick Romito. “Bottom line, having employees in the office is a key ingredient of vibrant downtown cores and is essential for maintaining their vitality.”

All markets and the nation see growth in demand for office space in Q2

Despite seasonal headwinds that typically cause demand for office space to moderate in early summer, national demand for office space rose significantly in June, up 10.3 percent month-over-month, after taking a short pause in May. After rising a remarkable 43.3 percent in the second quarter of 2021, national demand for office space is now only 14 percent below its 2018-2019 average, the most recent pre-pandemic benchmark.

Locally, demand for office space was up quarter-over-quarter in all VODI markets but was down in two markets month-over-month. Demand for office space has essentially returned to its 2018-2019 average in Los Angeles and New York and is approaching those levels in Chicago. The recovery of the three markets follows a sharp resurgence in demand in the second quarter.

Office demand in Boston, San Francisco, Seattle, and Washington, D.C. has recovered to a lesser extent than it has in New York, Los Angeles, and Chicago. In Boston, demand for office space grew an impressive 84.2 percent in the quarter but the city still has the lowest VODI of those covered in the report.

“The office market is cyclical and in a typical year we’d expect to see demand in all markets take a dip in June, but this isn’t a typical year,” said VTS Chief Strategy Officer, Ryan Masiello. “This year, as we dig out from a historically volatile past 18 months, employers are working off-cycle and employees who are normally on vacation this time of year are in the office and figuring out the next steps. If rules are meant to be broken, this is the year for it.”

New York City is still seeing an elevated share of tours in Trophy and Class A buildings

The flight to quality is still strong in New York City with more than two-thirds (76.7%) of the demand for office space in New York City in June for space in Trophy and Class A buildings. That is a lower share than during the peak upgrade opportunity during the pandemic trough in June 2020 (79.4%) but still a higher share than right before the pandemic, in February 2020 (71.3%).

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% 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.

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