Office Space Demand Last Month was Half of Pre-Pandemic Levels

Despite being flat for the fourth consecutive month, employer demand for office space was up 31 percent year-over-year, according to a VTS Office Demand Index (VODI) analysis.

Demand for office space closed out the second year of the COVID-19 pandemic down 47.1 percent from February 2020, the last month prior to the declaration of the pandemic. 

This is despite favorable fits and starts that once had the VTS Office Demand Index (VODI) at 87 percent of normal last summer after bottoming in June 2020 at 16 percent of normal.

The VODI tracks unique new tenant tour requirements, both in-person and virtual, of office properties in core US markets, and is an early indicator of upcoming office leasing activity as well as the only commercial real estate index to explicitly track new tenant demand.

CBRE, Kastle Report Muted Office Demand

This matches the varied, but mostly lukewarm interest in office space use as reflected in recent data from CBRE and building security provider Kastle.

Office leasing slowed for the second straight month in February as occupiers pressed pause on new commitments, according to CBRE. But the firm notes that tenant requirements were unchanged for the month, suggesting “the decline in leasing may be temporary, and that leasing may pick up as omicron caseloads continue to rapidly decline.” 

The CBRE US Leasing Index posted its biggest monthly drop since the firm began tracking the data in March 2020, falling by 18 points month-over-month in February. 

The US Tenants in the Market (TIM) Index and the US Sublease Availability Index were unchanged.

And according to Kastle, which has customers in more than 2,600 US buildings in 138 cities, the average weekly occupancy is still just 40%. Though there are regional differences, only the Austin metro is above 50%. 

Office Space Demand Declined Modestly: VODI

New demand for office space declined modestly in February, marking the fourth consecutive month of little to no monthly change to the VODI. However, cumulatively the national VODI is down 9.8 percent over the same period. 

Currently at a VODI of 55, demand for office space is down 5.2 percent month-over-month and down 9.8 percent quarter-over-quarter, but is up 31 percent year-over-year.

“February is typically the first month of the year when demand for office space picks up in earnest, but February 2022 was anything but typical,” Nick Romito, CEO of VTS, said in prepared remarks. 

“We believe that between recent record-breaking COVID-19 infection rates and general economic uncertainty, the typical seasonal rise in demand may be delayed. That said, even with a delay, it is possible that the downward pressure of hybrid work patterns will mute any demand spikes.”

LA, Chicago, Seattle Recovery Better Than Most

All core markets are seeing demand levels well below what they were the month prior to the onset of the pandemic. 

However, Los Angeles, Chicago and Seattle have fared much better than Boston, New York, San Francisco and Washington, D.C., where demand for office space is still down by 50 percent or more from pre-pandemic levels.