More than half of core office markets are close to or exceeding pre-pandemic demand for office space, according to the April 2021 VTS Office Demand Index (VODI) monthly report
NEW YORK — Apr. 28, 2021 — National demand for office space surged in March 2021, up 28 percent from February and 161 percent in Q1 2021, and is now just 9 percent from pre-pandemic levels. The rapid rise in demand signals that a return to the workplace across the country is imminent and employees should be prepared to be called back to the office soon, according to the VTS Office Demand Index (VODI). 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.
If national growth trends continue, due to pent-up demand coming largely from tenants that postponed their space search during the height of the crisis and opportunistic bargain hunters, demand for office space in April 2021 is on-track to meet or exceed pre-pandemic levels. However, a potential fourth wave of COVID-19 cases combined with stalled growth of office-using employment numbers could serve to temper, but not stall, office demand growth.
“Whether it be due to suppressed demand or bargain prices in some areas, employers are running, not walking, to find office space for their employees. The turnaround has truly been remarkable and is a testament to the resiliency of our country in the face of disaster,” said VTS CEO, Nick Romito. “Based on current momentum, I fully expect demand to continue to rise, although we should start to see incremental growth slow as we meet and then exceed pre-pandemic demand levels.”
Locally, more than half of the nation’s core office markets, including Chicago, Los Angeles, Washington, D.C., San Francisco, and Seattle, have exceeded or are within 5 percent of pre-pandemic demand for office space. While positive, only four of the markets’ VODI are within 10 percent of or above their recent historical average: Seattle (18.5%), Los Angeles (-2.8%), Washington, D.C. (-4.8%) and San Francisco (-8.8%). Chicago is still 27 percent off its recent historical average despite being within an earshot of its pre-pandemic demand level.
All markets covered by the VTS Office Demand Index saw incredible growth in demand for office space in Q1 2021 with Seattle and San Francisco leading the way at 365 and 276 percent quarter-over-quarter growth, respectively. Seattle, the most volatile market covered, has now seen four consecutive months of demand levels outpacing seasonal norms although, with the VODI now above both the pre-pandemic index value and its recent historical average, the rate of growth is slowing.
San Francisco, one of the hottest office leasing markets in 2018 and 2019, saw demand fall sharply in the four months leading up to the pandemic (down 41 percent from October 2019 to February 2020). COVID-19 and the associated lockdowns only served to exacerbate the decline and by May 2020, demand for office space was nearly nonexistent. However, due to significant gains made in the last five months, demand for office space has rebounded to levels not seen since October 2019.
“There is no doubt that the West Coast is hot right now, but that shouldn’t overshadow the incredible growth in demand for office space we are seeing in New York City and Washington, D.C.,” said VTS Chief Strategy Officer, Ryan Masiello. “We’re hearing on the ground and seeing in our data that New York City is getting closer to a full return-to-work. Rising vaccination rates in addition to the incredible changes employers and building owners are making are key to getting back to normal despite local COVID-19 rates.”
VTS Office Demand Index (VODI)
|February 2020 VODI (pre-pandemic)||94||103||55||95||128||86||56||110|
|March 2020 VODI||57||55||30||62||81||39||28||82|
|March 2021 VODI (current)||86||50||53||95||102||107||94||114|
|Year-to-Year VODI Change||29||-5||23||33||21||68||66||32|
|Year-over-Year VODI change (%)||50.9%||-9.1%||76.7%||53.2%||25.9%||174.4%||235.7%||39%|
|Month-to-Month VODI Change||19||9||15||14||16||25||27||28|
|Month-over-Month VODI Change (%)||28.4%||22%||39.5%||17.3%||18.6%||30.5%||40.3%||32.6%|
|Quarter-to-Quarter VODI Change||53||14||38||33||67||84||69||74|
|Quarter-over-Quarter VODI Change (%)||160.6%||38.9%||253.3%||53.2%||191.4%||365.2%||276%||185%|
|Recent Historical Average (Jan. 1, 2018-Dec. 31, 2019)||102||99||73||98||117||90||103||120|
|March 2021 Percent From Recent Historical Average||-15.3%||-49.3%||-27.4%||-2.8%||-12.7%||18.5%||-8.8%||-4.8%|
In New York City prior to the pandemic, demand for office space was exceedingly high at 128 index points. After a significant crash of 121 index points (down 95 percent) from March to May 2020, demand has rebounded. In March 2021, New York City had a VODI of 102, 13 percent below New York City’s average VODI in 2018-2019. While incremental monthly growth has slowed some as the market rebounds, time will tell if pent-up demand and bargain hunter employers will eventually push demand above elevated pre-pandemic levels.
In Washington, D.C., demand for office space generally follows a seasonal pattern with the exception of years that have a change in administration. As expected, demand for office space in Washington, D.C. surged in March making it four consecutive months of demand outperforming seasonal norms. Demand for office space in Washington, D.C. now exceeds pre-pandemic levels.
While Boston and Chicago have consistently lagged all other major markets in their march to recovery and have similar low levels of demand (50 and 53, respectively), the two markets recently diverged with Chicago seeing greater near-term growth. In March, demand for office space in Chicago was up 253 percent in the first quarter compared to growth of just 39 percent for Boston.
New York City Tenants Still Seek the Highest Quality Buildings
While the number of tenant tours in class-A or trophy building spaces in New York City declined in March for the first time since December, interest in premium spaces is still high. Seventy-two percent of all tenant tours in NYC are for premium spaces, still up from roughly two-thirds pre-pandemic.
VTS is commercial real estate’s leading leasing, marketing and asset management 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.
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.