Demand for Office Space Largely Unchanged in April, Underperforms Relative to Seasonal Norms

Demand for office space fell just 1.5 percent nationally from March to April, a departure from the seasonal norm that typically calls for increasing demand during the month of April. Demand for office space now sits at two-thirds of normal, according to the VTS Office Demand Index (VODI). 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.

While underperforming nationally by 5.1 percentage points in April compared to the average increase seen in April pre-pandemic, new demand for office space is still up 12.1 percent quarter-over-quarter. However, the VODI is down year-over-year, primarily due to an abnormal surge in pent-up demand in April 2021 caused by the post-vaccine push to implement office plans that had been on hold during earlier phases of the pandemic.

“We’ve moved away from COVID-19 being the single driving force impacting demand for office space, to broader economic variables driving decisions,” said Nick Romito, CEO of VTS. “Looming economic concerns may have some employers sitting on the sidelines until there is more certainty on the horizon.”

VTS Office Demand Index (VODI)

Persistent remote work-friendly divide

The disparity in demand for office space between more remote work-friendly and less remote work-friendly persisted in April. On average, the core office markets of New York City, Chicago and Los Angeles performed 25.3 percent better than the more remote friendly core office markets of San Francisco, Boston, Seattle and Washington, D.C.

Prior to the pandemic the two groups of cities, when combined, most commonly had a monthly difference in the single digits, flip flopping between which set of cities performed slightly better than the other in a given month. However, in September 2020 the divide ballooned to greater than 30 percent, and the more remote-friendly office markets fell significantly behind.

“It is quite remarkable how clear the line is between cities that have a large share of remote-friendly jobs relative to those with a smaller share,” said VTS Chief Strategy Officer Ryan Masiello. “To continue to recover, the core office markets with higher rates of remote-friendly tenants will need to attract more diverse tenants and be willing to adapt their spaces to meet the needs of tenants who are not planning for their employees to come back into the office full time.”

Locally, more than half of the core office markets experienced growth in demand for office space in April with three of the markets, Boston, Chicago and San Francisco, experiencing month-over-month growth for at least two consecutive months. Core office markets that experienced significant swings in demand for office space in March – Seattle and Washington, D.C. – saw the swings largely reversed in April.

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With the VTS Platform, consisting of VTS Data, VTS Market, VTS Rise, and VTS Lease, every business stakeholder in commercial real estate is given the real-time market information and executional capabilities to do their job with unparalleled speed and intelligence. VTS is the global leader with more than 60% of Class A office space in the U.S., and 12 billion square feet of office, retail, and industrial space is managed through our platform globally. VTS’ user base includes over 45,000 CRE professionals and industry-leading customers such as 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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