Few Office Tenants Touring Now-Affordable Trophy Space

Even though Class A office space is now generally more available than pre-crisis and at more affordable rates, the share of tours in premium spaces has remained remarkably stable at 62% of all tours in each period. 

Except for one city, that is—New York. 

There, during the recovery months of June through October, tours of Trophy or Class A share rose to nearly 70% of all tours. In the pre-crisis months of January, February, and early March, with fewer options to choose from, a little over half (55%) of tours in New York were for Trophy or Class A office spaces.

This is one of the findings of VTS’ new office demand index, or VODI, which was designed to provide visibility into real-time tenant demand in the US office leasing market by capturing tenant tours.

For all cities, there have been some commonalities:  Activity in the typical peak months of spring was lost to the COVID-19 crisis, for starters. Then, after posting positive growth during the summer months, the threat of rising COVID-19 cases eliminated the October bump in almost all markets. 

But, it noted, while US markets share similar timing, the size of the demand shock and pace of recovery has varied significantly. In New York City, that has translated into a flight for quality that is now affordable for many tenants.

Other cities have different stories to tell.

When COVID hit, New York, along with San Francisco, suffered the most contraction, according to VTS. Both cities lost more than 90% of their office space demand between mid-March and spring. But major markets suffered across the board. Boston and Washington, DC, for example, were the least affected markets but still dropped 71 and 75%, respectively.

Los Angeles was among the leading markets in recovering, gaining three-quarters of the demand lost after stay-at-home orders were issued in March 2020. Los Angeles’ 41 index point quarter-over-quarter growth was followed by 24 and 22 index point gains in Seattle and Washington, respectively.

The city’s 12 index point growth in October was slower than its 18-point September gain. Washington, like LA, saw slower growth in October. Seattle, however, fell 2 points over October.

While steady government demand historically boosts Washington, Seattle’s recovery indicates that the tech industry may not be embracing remote work as much as some observers think, according to VTS. However, it notes that the recovery has been broad-based across industries.

In New York, which was hardest hit initially by COVID, tenant demand jumped 9 points in June and 14 points in July to a VODI of 31. Other markets didn’t match this pace until September. The city’s recovery slowed afterward and fell five-point in October.

Boston experienced one of the smallest VODI declines from February levels and has seen little growth in demand after making progress in May and June. San Francisco, the hardest-hit market, faced issues coming into the pandemic and has seen a nine-point increase since hitting bottom.

“Where industry experts look to Seattle as a hopeful harbinger of tech’s future office space use, San Francisco—with its exposure to more speculative leasing demand fueled by venture capital funding—is the only market where tech has yet to renew interest in more office space,” according to VRS.