Office demand surged in March, rising 28% from February and 161 percent in Q1 2021, according to the VTS Office Demand Index (VODI). Demand is now just 9% below pre-pandemic levels.
If the current pace continues, demand for office space in April 2021 could meet or exceed pre-pandemic levels. Half of the major markets, inducing Chicago, Los Angeles, Washington, D.C., San Francisco, and Seattle, have exceeded or are within 5% of pre-pandemic demand for office space. Still, only Seattle (18.5%), Los Angeles (-2.8%), Washington, D.C. (-4.8%) and San Francisco (-8.8%) have a VODI within 10 percent of or above their recent historical average. Even though it’s near pre-pandemic VODI levels, Chicago is 27 percent off its recent historical average.
Seattle and hard-hit San Francisco posted strong Q1 gains, leading the way at 365 and 276 percent quarter-over-quarter VTS Office Demand Index growth, respectively. Volatile Seattle has seen four months of growth and is now above both the pre-pandemic index value and its recent historical average. While San Francisco saw demand fall sharply in the four months leading up to the pandemic (down 41 percent from October 2019 to February 2020), it has now rebounded to levels not seen since October 2019.
While New York City also experienced a crash with its VODI falling 121 index points (down 95 percent) from March to May 2020, demand has flourished. Its March 2021 VODI of 102 was 13 percent below New York City’s average VODI in 2018-2019.
Demand for office space in Washington, D.C. now exceeds pre-pandemic levels and has experienced four consecutive months of demand outperforming seasonal norms. Boston and Chicago have consistently lagged other markets, but their paths have separated. In March, demand for office space in Chicago was up 253 percent in the first quarter, while it was just 39 percent for Boston.
“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 in prepared remarks. “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.”
As the tours tracked by VODI increase, office interest from investors should also rise.
A report from Crexi shows that investors looking for office deals were 25% more active on the firm’s marketplace in Q1 than in the previous quarter. And tenant leasing activity picked up 42.9% over the same period, with office attracting the second most amount of overall buyer attention behind retail properties.
The average asking price for office assets on Crexi grew for the third consecutive quarter and showed a 5.13% gain over Q4 numbers. Occupancy levels also ticked up slowly, with 2.16% growth over the previous quarter but with rates still far below pre-pandemic levels.