New Demand for Office Space Continues to Slide

Real estate tech platform VTS reported that new employer demand for office space has been on a five-month drop and is now at 58% of normal, compared to the 87% level reached in August 2021.

Demand has fallen four out of the last five months, including a 5% drop in December. Demand had lifted 171.9% from January to August 2021. VTS does note that the increase may have been pent-up demand that finally ran out. Concerns about Covid-19 resurgence through variants then depressed additional activity.

On the positive side, VTS noted that December is usually under-performing and a 5% drop is less than might have otherwise been expected. Declines in December ran from 3% in Boston to 10% in New York City.

“Remote-friendly cities of Washington, D.C., San Francisco, and Boston are currently pacing at 47, 45 and 33 percent of their 2018-19 demand average, respectively,” the release about the report stated. “Less-remote-friendly New York City, Chicago, and Los Angeles are currently pacing at 64, 66 and 71 percent of their 2018-19 demand average.”

Seattle has been an exception among remote-friendly cities, with generally higher levels of new office demand. But even there has seen a 31% drop since the August peak.

“However, despite a better than usual end of the year, looking ahead into 2022, I expect bruised sentiment to continue to materially impact demand for office space,” VTS CEO Nick Romito said. 

The company’s VTS Office Demand Index, or VODI, is based on measurements of “unique new tenant tour requirements, both in-person and virtual, of office properties in core U.S. markets.” Because the analysis is based on its data and, therefore, that of its customers, it isn’t a normal statistical sampling and may not be representative of the wider market. 

At the same time, truly statistically representative data isn’t readily available. VTS claims to follow more than 60% of US Class A office space and “12 billion square feet of office, retail, and industrial real estate globally,” so automatically ignoring it is likely unwise. Given that the numbers sit on data about Class A space, which would typically have heavier interest and better occupancy and rent rates, the full picture might be worse than what VTS paints.

Data from other sources reinforces the tentative position of the office sector, as overall sentiment is down and appraisers are struggling to assign value to office properties.