One Year After the Start of the Pandemic, Demand for Office Space Rebounds Nationally; Recovery on the Horizon for Several Markets

24 March 2021 · PRESS RELEASE

NEW YORK — Mar. 24, 2021 — One year after the start of the pandemic, demand for office space in the country’s largest markets is approaching pre-COVID levels, and recovery appears to be looming for several markets. The national VTS Office Demand Index (VODI) is 38 percent lower than it was just before the pandemic — compared to a low of 85 percent below pre-pandemic levels last May — and significant gains in January and February suggest a recovery is on the horizon.

The VODI tracks tenant tours, both in-person and virtual, of office properties across the nation and is the only commercial real estate index to track tenant demand. 

Over the past three months, the rate of demand has outpaced seasonal norms, with each month outperforming the last. In February 2021 the national VODI increased by 13 points to 58 -- a monthly growth rate of 29 percent. 

“The past year was one of the darkest periods we’ve seen in commercial office leasing history. Amid the uncertainty of just how the pandemic would impact businesses and their employees, we went from a period of healthy demand for office space to zero demand almost overnight--it was an alarming swing,” said VTS CEO, Nick Romito. “While we saw some growth in demand in the back half of 2020, the exponential increase in the first two months of 2021, combination with the announcement from the Biden Administration that all Americans will be eligible for the vaccine by May 1, 2021, is providing confidence that a meaningful recovery is on the horizon.”

Full Recovery is in Sight for Some Local Markets

February 2021 marks the first month since October 2020 in which demand grew in all of the nation’s core office markets tracked by the VODI. Monthly growth rates in February 2021 were the strongest in New York City, Seattle and Washington, D.C. 

Demand for office space in New York City jumped 120 percent since the new year and is now only down 40 percent from pre-pandemic one year ago. The VODI in New York City was 35 in December 2020; 54 in January; and 77 in February. At its worst in May 2020, the VODI in New York City hit an index low of 7. 

After experiencing one of the more significant seasonal declines in Q4 2020, demand for office space in Seattle is up 182.6 percent in 2021 (up 22 and 20 VODI points in January and February, respectively, to 65). Seattle office leasing demand is down only 24 percent from pre-crisis levels one year ago.

The markets closest to regaining everything lost since the start of the pandemic in February 2020 are San Francisco (down 5 percent), and Los Angeles (down 18 percent) . After experiencing the lowest bottom of all markets with almost no office tenant demand in mid-2020, San Francisco’s VODI experienced strong growth (253 percent) over the last three months, increasing 38 VODI points from 15 in November to 53 in February. 

“While it is encouraging that San Francisco has made up almost everything lost since the pandemic started, it is important to remember that demand in San Francisco was depressed leading into the pandemic, said VTS Chief Strategy Officer, Ryan Masiello. “After peaking in early 2019, demand slowed throughout the rest of 2019 and into early 2020, and then the pandemic hit. It will take several more months of exponential growth to get back to pre-2020 levels of demand.”   

VTS Office Demand Index (VODI)

NationalBOSCHILANYCSEASFDC
February 2020 VODI (pre-crisis)9410355951288656110
February 2021 VODI (current)5836307877655371
Year-to-Year VODI Change-36-67-25-17-51-21-3-39
Year-over-Year VODI change (%)-38.3%-65%-45.5%-17.9%39.8%-24.4%-5.4%-35.5%
Month-to-Month VODI Change1338723201317
Month-over-Month VODI Change (%)28.9%9.1%36.4%9.9%42.6%44.4%32.5%31.5%
Quarter-to-Quarter VODI Change24-8131744433823
Quarter-over-Quarter VODI Change (%)70.6%-18.2%76.5%27.9%133.3%195.5%253.3%47.9%
Change since Dec. 31, 2020 (%)75.8%0%100%25.8%120%182.6%112%77.5%
VODI Trough (lowest point)1426911710330
Trough Month May ‘20Apr. ‘20Apr. ‘20May ‘20May ‘20May ‘20May ‘20May ‘20

 

Both Boston and Chicago are lagging behind all other core markets on their march to recovery in both their current level of demand for office space and the length of time it has taken to see demand pick up. While both markets did see growth in February, gaining 3 and 8 index points, respectively, the growth is preceded by a collective period of flat or negative growth. Looking ahead, it may be that the recovery is latent as opposed to absent in these cities, given that markets that saw the best growth in February also had significant growth in the preceding months. 

Three out of every four building tours in New York City are in the highest class buildings

Relatively soft demand in New York City continues to provide an opportunity for space in the most iconic of buildings. Though mitigating somewhat, the flight to quality in office demand is still significant with Trophy and Class A taking up 76 percent of all toured space in February, up from 60 percent pre-crisis. 

About VTS

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 11B 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 vts.com.

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