Parsing the Conflicting Data on Office Tours

Cushman & Wakefield has waded into the debate about office tour activity and what it foretells for this asset class in a recent brief. There are a number of different data points on this metric, with each provider interpreting the meaning differently. 

Let’s start with C&W. It found that tour activity was on the rise this spring, nearly tripling in the first quarter and continuing through August. But in September, tours declined, which Cushman experts say is in line with historical seasonal trends from 2018 and 2019 in particular.

VTS reported similar findings with its index earlier this month but its conclusion was more dire. It found that new demand for office space fell for the second consecutive month in October to its lowest rate since the first quarter of 2021 suggesting that the initial post-vaccine surge of demand for office space has run its course. 

Down 30% nationally since peaking August 2021, all seven markets analyzed by the VTS Office Demand Index saw declining demand for office space over the two-month period.

“As we pass the 18-month mark since the start of the pandemic, employers and employees alike have largely adapted to a new way of working and in many cases, that means permanent remote or semi-remote work,” said Nick Romito, CEO of VTS, in prepared remarks. “The longer we stay in limbo⁠—the place where, even with vaccines and better COVID-19 treatments, there is still trepidation about returning to work⁠—the greater the likelihood we have a permanent loss of demand for office space and eventually, a new normal. Time is not on the side of office leasing.”

Then, there is CBRE. At the end of November, it reported that many top US office markets showed improved demand for new office leasing in the month of October even as leasing activity and sublease availability indices weakened slightly for the month, pausing their positive momentum from previous months.  

“The growth of tenants actively looking for space is a precursor of increased leasing to come,” said Nicole LaRusso, CBRE Senior Director of Research & Analysis, in prepared remarks.  “Recent strong job growth should add further momentum to the office market, particularly as consumer and business confidence increases. Barring another Covid resurgence, the office market appears to be on firm footing heading into 2022.”

Cushman, for its part, points out that tour activity—which is typically a leading indicator for leasing activity—is still more than twice the amount of fall 2020.

Total leasing in the last two quarters is 50% higher than the last three quarters of last year, a metric Cushman says “bodes well for lease executions, and eventually net absorption, over the next several quarters.”

Indeed, net absorption last quarter was nearly 50% better than the precious four (-18.3 million square feet in Q3 versus an average of -35.7 msf of absorption).  Gains were led by Atlanta, Puget Sound – Eastside (Seattle), Suburban Maryland and San Diego.

Net absorption also improved quarter-over-quarter across 60 of the 90 markets tracked by Cushman & Wakefield, including gateway markets like San Francisco (+1.8 msf), Midtown Manhattan (+1.8 msf), Los Angeles (+1.3 msf) and Boston (+1.0 msf).  The four-quarter rolling total US leasing activity has also increased by 14% over the past two quarters.

All signs appear to point to the office sector evolving, not collapsing, according to Petra Durnin of brokerage, workplace strategy and project management firm Raise.  That’s especially true as companies eye flex space as an alternative to traditional office models.

“Companies are accessing better solutions to attract and retain high-quality talent,” she told GlobeSt in an earlier interview. “The shift from highly centralized offices near talent pools to a distributed workplace strategy means many companies are adopting not only a hybrid model but a hub/spoke/remote model and evaluating multiple locations across the U.S. with a heavy focus on sublease space or coworking. The whole shift in how and where people work is a rebalancing effort to meet talent where talent is.”