Monthly Growth in Office-using Employment Sees Biggest Monthly Drop in a Year, But New Office Demand Remains 282% Above Pre-COVID-19 Numbers
NEW YORK — August 25, 2021 — After six consecutive months of growth in new demand for office space, demand eased in July as concerns over a surge in delta variant COVID-19 cases, as well as normal seasonal headwinds, took hold. Despite this, the monthly decline is lower than the typical July pre-pandemic seasonality in both 2018 and 2019. Nationally, the VTS Office Demand Index (VODI) is now 16 percent below its 2018-2019 average, which is used as the ‘100’ point in the Index. The VODI tracks unique 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 new tenant demand.
New office demand dropped 1.2 percent in July from June, but is lower than the average July decline in 2018 and 2019 of 5.1 percent. New office demand is up 282 percent on a year-over-year basis, reflecting a strong recovery to date.
At the same time, employers slowed the hiring of office-using roles in June. The rate of office-using employment growth in June has fallen to its slowest rate since the depths of the COVID-19 pandemic in June 2020.
“The delta variant is causing some uncertainty across the economy, so it’s no surprise we’re seeing that reflected in demand for office space as well,” said VTS CEO, Nick Romito. “But there’s no need to hit the panic button yet. We’re likely looking at another delay to full recovery, but early indications point to continued relative stability as seen earlier in the year — not the massive drop-offs we saw when the pandemic first began.”
Locally, Boston, Los Angeles, and Seattle bucked the national trend with a month-over-month increase in new demand for office space. At a VODI of 116, Los Angeles is the only market to exceed a VODI score of 100, the benchmark of pre-pandemic level of demand. Seattle, despite seeing a substantial 8.6 percent increase in demand for office space in July, is still 24 points below its pre-pandemic level of 100.
|VODI Cities||National||Boston||Chicago||Los Angeles||New York City||San Francisco||Seattle||Washington, D.C.|
|Current VODI (July)||84||64||86||116||92||62||76||78|
|Month-over-Month Change (%)||-1.2%||6.7%||-4.4%||13.7%||-4.2%||-7.5%||8.6%||-2.5%|
|Month-over-Month Change (VODI points)||-1||4||-4||14||-4||-5||6||-2|
|Quarter-over-Quarter Change (%) May-July||12%||20.8%||26.5%||48.7%||10.8%||-1.6%||-8.4%||-12.4%|
|Quarter-over-Quarter Change (VODI points) May-July||9||11||18||38||9||-1||-7||-11|
*Data on remote-friendly jobs is attributed to a study by Apartment List which builds on prior academic work (Dingel & Neiman (2020).
New York City is seeing a pull-back in the share of demand for Trophy and Class A properties, but prospective tenants still in the hunt are touring larger spaces
The share of tours in Trophy and Class A declined to 72.4 percent in July from 79.2 percent in June.
The median square feet of a Class A property tour is up 27 percent, growing to 10,000 square feet from 7,872 square feet; Trophy is up by 9.8 percent, growing to more than 13,000 square feet from 12,000 square feet; and Class B is up by 9.1 percent, growing to 6,000 from 5,500 square feet.
“The macro trend of lower new demand overall, alongside individual requirements of greater square footage, suggests that smaller firms that are more sensitive to the impacts of rising COVID-19 cases are withdrawing from the market,” said VTS Chief Strategy Officer Ryan Masiello. “This withdrawal may reflect employer uncertainty surrounding return-to-office plans that could have been initiated before the emergence of the COVID-19 delta variant.”
The “Remote Divide” continues, with heavy work-from-home markets still lagging
San Francisco, Boston, and Seattle — markets with some of the nation’s highest shares of remote-friendly work — continue to lag overall and are farther than other markets from full pre-COVID office demand levels. The three markets are, respectively, at 62, 64, and 76 percent of their typical 2018-2019 office demand.
In contrast, New York City, Los Angeles, and Chicago have remote work shares that are much closer to average, and their office demand is already 92, 112, and 86 percent (respectively) of their 2018-2019 levels, though only Los Angeles increased its VODI from June to July.
Those trends are also generally consistent with concurrent job posting data from Indeed, which indicate that in those cities with lower shares of remote-friendly work, job postings are higher relative to their pre-pandemic levels. San Francisco, Boston, and Seattle’s job postings are currently 15.2, 24.4 and 18.3 percent above their pre-pandemic (February 2020) levels, and Washington D.C.’s are 14 percent, while New York City, Los Angeles, and Chicago’s job postings are 25.8, 32.0 and 33.0 percent above their pre-pandemic levels. All markets saw an increase in their job postings from the month prior.
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