New Demand for Office Space Ends 2021 Down 33 Percent From Summer Peak

New employer demand for office space receded again in December and is now just 58 percent of normal, pre-pandemic. Since peaking in August at 87 percent of normal, the VTS Office Demand Index (VODI) has fallen for four of the past five months, including five percent in December. 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.

Demand for office space rose sharply (171.9%) from January to August 2021 fueled largely by prospective tenants who had been waiting on the sidelines and were prompted back into the market by improving pandemic metrics. However, once the pent-up demand had been spent and concerns emerged around COVID-19 variants, the VODI fell sharply in the following months. More recently, employer demand for office space has been impacted by the emergence of omicron, which may continue to influence the VODI in coming months.

“It's hard to ignore the emergence of new variants’ effect on employers’ ability to plan for a return to the office, but given that December is typically an underperforming month, I would’ve expected a greater decline than what we experienced this month,” said VTS CEO, Nick Romito. “However, despite a better than usual end of the year, looking ahead into 2022, I expect bruised sentiment to continue to materially impact demand for office space.”

Core markets see demand fall up to 51 percent since summer peak

With the exception of Seattle, all core markets saw new demand for office space decline mildly in December, relative to pre-pandemic years. The rate of decline in December ranged from three percent in Boston to 10 percent in New York City. The fall in demand since peaking in over the summer ranged from 31 percent in Seattle to 51 percent in Washington, D.C.

Cities’ “remote-friendliness” continues to dictate progression to normalcy

On aggregate, remote-friendly cities under-performed those that are less so by nearly 30 percent, on average, in the second half of the year.

• Remote-friendly cities of Washington, D.C., San Francisco, and Boston are currently pacing at 47, 45 and 33 percent of their 2018-19 demand average, respectively.
• Less-remote-friendly New York City, Chicago, and Los Angeles are currently pacing at 64, 66 and 71 percent of their 2018-19 demand average.
• An exception to the pattern is the remote-friendly city of Seattle, which has generally maintained higher levels of new office demand than the other remote-friendly cities throughout 2021.

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.

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