Office Space Demand Continues to Grow As Companies Make Space Decisions

April marked the fourth month of recovery as the office market inched closer to its pre-pandemic benchmark, according to the VTS Office Demand Index (VODI).

The VODI, which tracks in-person and virtual tours of office properties across, is currently at 85, with demand for office space nationally at 15% of the pre-pandemic benchmark. VTS now defines the benchmark at 100, which is the average VODI, or rate of demand. Since January, demand for office space is up 117.9% nationally.

Seasonal demand in March and April helped drive growth—in addition to the recovery from the pandemic—but activity often slows after that. Still, VTS says it is uncertain if seasonality will play out as it has in recent years with attractive lease terms and pent-up demand likely to fuel a continued surge in demand for office space through late spring.

VTS notes that all markets saw an expected deceleration in demand in April. In Los Angeles and Washington DC, for example, demand pulled back. VTS attributes this more to typical monthly volatility than it to the beginning of a long-term trend.

“If it were any other year, I would be telling you that demand for office space will absolutely pull back in late spring, but this is unlike any other year,” said VTS CEO Nick Romito in prepared remarks. “Companies are making strategic decisions on when they want to return to work and planning for their future with little regard for the calendar. I expect that it will take at least another six months before the market behaves in a typical manner.”

While Los Angeles and Washington DC experienced a slight pullback, New York experienced its most significant growth in demand in April. The Big Apple’s demand grew 16 index points or 18.4% from March to April. Now demand sits 2.9% above the pre-pandemic benchmark for the market. VTS says that tours in the market have skewed substantially towards trophy and Class A office buildings.

While Chicago has also performed well recently, demand for office space is still 21.1% below the pre-pandemic benchmark. Since the beginning of the year, Chicago has seen a 154.8% increase in demand. While it is now above its February 2020 market, demand for office space was down 26% at the pandemic’s beginning relative to the 2018-2019 average benchmark.

Boston and San Francisco still have VODIs well below their pre-pandemic level. Boston’s VODI of 61 is 39.1% below its pre-pandemic level. San Francisco’s VODI of 67 is 33% below its pre-pandemic level. Washington’s DC’s VODI of 83 sits 16.9% below its pre-pandemic level.

While tours may be increasing, changes in office space requirements loom. Seventy-one percent of commercial occupiers say the shift to remote work has fundamentally changed their long-term approach to space usage, according to a survey of 200 tenants and 50 landlords from MRI Software and CoreNet Global.

Driving these changes will be the widespread adoption of remote working. More companies (89%) say they will be allowing remote working after the pandemic than before (66%). However, most respondents (more than 40%) still don’t know how many tenants will be required to come to the office.

As remote work becomes more popular, 54% of occupiers say they will convert to or expand their use of hot-desking. Only 20% plan to keep assigned workstations. More than 25% expect to add space between desks or cubicles, while more than 15% plan to add breakout rooms.