VTS Data November Snapshot: Your Key to Navigating Nationwide Office Demand Trends
Welcome to the November edition of the VTS Data Snapshot, where we dive into trends across the commercial real estate industry in major US markets.
Heading towards the end of the year, some interesting swings and shifts were recorded across US gateway markets. From New York City to Los Angeles, our Data team’s monthly analysis uncovers pivotal insights that reveal tenants' ever-evolving preferences and requirements.
While this blog provides a snapshot, mark your calendars for the comprehensive VTS Office Demand Index (VODI) report at the end of January, where we'll deep-dive into the data-backed intricacies of these trends and more.
Did you miss the October VODI? Catch up on the full report.
Skip to a market:
NEW YORK CITY: Smaller Tenants Come Back with a 24% Jump MoM
Smaller tenants bounce back - The count of small tenants <10k popped in October after a tepid year, jumping 24% MoM while total square footage remained flat. With the exception of August 2023, the last time the total sf of new tenants <10k square feet surpassed the total square footage of 50k+ square feet was in August 2022, signaling a strong month for smaller users.
Industry trends - The "Other" industries (Associations/Nonprofits, Healthcare, Government, and energy) made up the largest count and sf of demand this month and were also the only industry groups to see an increase over the monthly average in 2021, up 80% on a count basis and 48% on a square footage basis.
Rise in Midtown South & class B tours - Unique tenant tours for Midtown South were up 33% month-over-month and 37% from the monthly average in 2021, driven primarily by a 22% increase in TAMI requirements. In addition, Class B unique tenant tours saw a similar increase, up 60% month-over-month, the highest of any asset class.
Increase in leasing activity - The number of executed Trophy & Class A, 10k+ square footage, and 60-month term deals increased 21% month-over-month. 68% of these were executed in Midtown, 18% in Downtown, and 15% in Midtown South. 20% of these deals are concentrated within Trophy assets and have starting rents of $100+/sf.
HOUSTON: Professional Services Driving Short-Term Demand
New demand slows after hitting annual high – New requirements entering the market in October saw a 33% decline from the annual peak witnessed the month prior. The VODI remains flat (-2%) when comparing year-to-date 2023 demand vs. the same period in 2022.
Professional Services continues to drive short-term demand - Professional Services demand was the highest of any industry during the T-3 months. Healthcare was the second largest contributor, up 31% compared to the previous three-month period. Energy continues to lag, down 61% from this same period last year.
ADOT hits a record high – The count of requirements captured in active demand over time (ADOT) hit a record high in October, but the total active square feet is below the volume peak recorded in August 2022. The small and mid-block tenant segment made up nearly 80% of new demand in the trailing twelve months.
CHICAGO: Central Loop Tour Activity Up 64% from 2021 Average
Total volume keeping consistent - Small and midsize tenants kept overall demand steady month-over-month despite a pullback of large tenants (down 29% by both count and square footage). Though the average size of requirements shrunk by 11%, large gains in the mid-size sector (+38% and +64% on a count and square footage basis) more than made up for it, with a 3% bump month-over-month.
Rise in Central Loop tours - Touring activity increased for the Central Loop and River North/River West submarkets. Central Loop tours were up 32% month-over-month and 64% from the monthly average in 2021. The River North/River West submarket cluster increased 8% month-over-month, the first increase since July.
Paper trading reaches an all-time high - Class A lease proposal volume increased 10% over the last three months vs. the previous three-month period, and the current proposals trading is the most since VTS began tracking them. Despite high activity, current active proposals are commanding only 1% higher starting rents and NERs compared to the deals executed in 2023.
BOSTON: New TAMI Activity Increased 11% MoM, Up From 2022 & 2021 Monthly Averages
Signs of life – October's new requirements, primarily driven by large tenants 50k square feet+, exceeded the 2021 and 2022 monthly average of 520k square feet for the second month in a row.
TAMI sees improvement – Following a tough Q3 for the sector, TAMI posted an 11% increase month-over-month in new activity. This is also a 5% and 17% increase over the 2022 and 2021 monthly averages, respectively. The only other industry to post improvements against all three time periods in October was the FIRE sector.
Tenants prefer Class A – Class A assets received 100% more unique tenant tours than Class B assets. This is an 11% increase month-over-month, a 41% increase over the 2022 average, and a 37% increase over the 2021 average. On the other side of the coin, Class B assets saw substantial declines in all three-period comparisons.
Proposals on the up – When comparing the trailing 6 months vs. the prior 6 months for deals with terms 36+ months, Back Bay and Fenway increased 77%, while Seaport and Downtown increased 29% and 22%, respectively. Despite this jump for Back Bay, Fenway, 84% of all proposals are trading for Downtown.
WASHINGTON, DC: T-3 Month Government Requirements Increase 300+%
Missing small tenants - New requirements were 9.7% below the monthly average across 2021-2022. While <10k square footage demand stayed relatively flat month-over-month, it is down about 30% compared to 2022 averages and about 40% compared to 2021 averages. Since small tenants typically make up the bulk of demand in DC, their weak showing this year kept demand levels 55% below pre-Covid and 22% below 2022.
Capitol Hill & CBD post strong touring activity - A 30% increase in tours in the CBD brought touring activity in line with 2022 and 2021 averages. Capitol Hill also had increased activity by 29% month-over-month and its third consecutive month of increasing tours, bucking the seasonal trend of low activity in autumn for this submarket. The East End continued its slide with a 17% decline in tours, but despite this, is in line with 2022 and 2021 averages.
Usual industries back in play - In the trailing 3 months, Government/Contracting requirements saw a 323% increase compared to the prior 3 months. Legal requirements were the most of any industry, realizing a 72% increase compared to the prior 3 months.
Active demand over time rises - Active demand over time surpassed the 2021-2022 monthly average for the first time since January. TAMI increased 10% month-over-month, and Professional Services has increased consecutively for 5 months, reaching a level not seen since Jan 2023.
SAN FRANCISCO: Second Summer? Office Demand at 2nd Highest Point in 2023, Driven by Large Tenants
Second Summer - Office demand rebounded in October, with the 2nd highest monthly volume this year after March. Large tenants (50k+ sf) drove this 80% increase from September. The VODI is now 17% higher than in 2022 but still 59% below pre-Covid levels.
Activity shift - Unique tenant tour activity outside of the CBD increased in October, with a notable 18% increase compared to September. This surge in activity in non-core CBD nearly doubled the average activity recorded throughout 2022. Conversely, tour activity within the Financial District declined 24%.
Proposal volumes dip - Proposal volumes have been on a downward trend since February; the past three months ending October are down 6.5% compared to the previous three-month period. This trend is mirrored in starting gross rents, which have declined by 2% compared to the trailing twelve months.
LOS ANGELES: Tech Still Ahead, TAMI Growth in DTLA
October demand trending on average – The volume of new demand that entered in October is in line with the 2021-2022 monthly average. While year-to-date demand has now reached the same amount year-to-date 2022, a key difference for 2023 has been the return of large-block demand, which is up 54% year-over-year to date.
Tech still ahead, creative turning around - Tech remains at the top with the industry’s highest volume of demand over the last three months, the most in any three-month period since VTS began reporting. October is the first month the trailing three-month aggregate for Creative on a count and volume basis grew from the previous three-month period – possible signs of demand accelerating from this sector as strikes resolve.
Big TAMI is looking beyond West LA – The West LA/HMW cluster remains the undisputed submarket of preference for TAMI occupiers, with 65% of TAMI active demand in LA overall. However, the large average TAMI requirement size in DTLA reflects a small subset of large-block TAMI requirements considering the submarket.
SEATTLE: CBD Shakes Up with a 27% MoM Increase in Tour Activity
Renewed signs of life - Seattle's office market rebounded in October, with requirements up 48% and 34% increase by count and volume from September, respectively. This marks a continuation of the upward trend in volume observed since the lull in July, indicating some positive momentum for the market.
Activity in the CBD - Unique tenant tour activity in Seattle's Core CBD increased by 27% compared to September. This surge in activity surpassed both the 2021 and 2022 annual averages by 59% and 52%, respectively. This could mark a promising turnaround following months of slow activity.
Slow demand flows through - Sluggish demand has proposal volumes declining 22% over the past three months ending in October compared to the preceding three-month period. Despite the low volume, TIAs have also gradually decreased a peak in proposals during February-April 2023.
