Remote-Friendly Cities See Slower Office Recovery

While maybe it should be common sense, cities with jobs that are more remote work friendly have an office market that is recovering slower than cities with fewer such jobs.

Seattle, Boston, and San Francisco, which have the highest share of remote friendly jobs in the nation, have levels of demand down 39, 43 and 46% from their 2018-2019 average, respectively, according to the VTS Office Demand Index (VODI). Markets with fewer remote friendly jobs, Chicago, New York and Los Angeles, are only down 14 and 15 and 24% from their pre-pandemic values, respectively.

VODI, which tracks in-person and virtual tours, attributed the figures for remote-friendly job shares to a study by Apartment List and prior academic work.

The one outlier is Washington DC. While the city has a high rate of remote friendly jobs, it is further along in the recovery. VTS says the city has a large share of government employers who may be less willing to keep remote work arrangements in place compared to employers in Boston, San Francisco and Seattle.

“The pandemic didn’t just change the way we work, it changed the way we live. Many workers have found value in remote or hybrid work and may be reluctant to go back to the way life was pre-pandemic, said VTS CEO Nick Romito said in a prepared statement. “In cities with higher rates of fully-remote jobs, hiring and retaining talent means employers will need to provide choices and flexibility – including fully-remote and fully in-office.”

While demand for office space increased earlier in 2021, it “took a breather” in May, according to VTS. In the first four months of the year, demand rose 173 percent but fell 8.5 percent from April to May.

However, demand is still five times higher than its May 2020 pandemic low. VTS attributes the May decline to a seasonal lull and an easing of pent-up demand. VTS Chief Strategy Officer Ryan Masiello says it should not be concerning that demand for office space tapered off in most markets. He expects it to fluctuate this summer before rising again in August and September.

Half of the markets covered by the VODI were within 25% of their pre-pandemic benchmark level as of May. VTS says that is a level that more closely resembles pre-COVID-19 normalcy.

Except for Chicago and Los Angeles, all markets saw demand for office space drop in May. Seattle experienced the most significant decline, dropping 24%. While Chicago, which was the only market to see increased demand in May, lagged other markets earlier in the recovery, it is now the closest of all markets to its pre-pandemic level.

VTS says demand for office space in The Windy City is propped up by the need for physical space for a higher percentage of roles that are not remote-friendly. It also says pent-up demand in Chicago may have been delayed because of cold weather in the winter.

Seattle, the only market to have experienced a drop in office usage in May, is notoriously volatile, according to VTS.

Office usage should remain healthy in the long-term if companies don’t dramatically reduce their office space. A recent survey from CBRE said just 9% of companies plan to significantly shrink their office portfolios, a figure that’s far less than last year’s 39%.

Of the 185 companies surveyed by the CRE giant in its Spring 2021 Occupier Survey, a whopping 85% say they expect employees to spend at least half of their time in a physical office. The majority of large companies—72%—appear to be planning for what CBRE calls “modest” office-space reductions, a significant increase from CBRE’s September 2020 survey results (45%).  And smaller companies report they’re more likely to keep their portfolio the same or grow it.