Office Demand Up By 20% in March

It was the best of times—at least in the last six months—it was, well, okay but not exciting. Call it a tale of two market reports.

VTS released its monthly Office Demand Index and said, “New demand for office space surged by 20 percent nationally in March, ending a five-month stretch of stagnation,” with “all but one core office markets [having seen] new demand for office space increase in March, in line with those markets’ specific seasonal trends.”

The current state of the company’s index—a measure of annual activity relative to a pre-pandemic average baseline figure interpreted as 100—is 66. That’s a year-over-year increase of 8.2% but still only two-thirds of what demand used to be. Compare it to March in either 2019 or 2019 and the current measure is only 60% of how things used to be.

But then there’s another view, this one from CBRE, which wrote that activity in gateway markets remained muted in March even as companies ramped up their searches for space. The company’s Tenants in the Market index “increased by 2 points to a pandemic-era high of 91 in March.” CBRE considers this index an “early indicator of leasing activity later in the year.”

And yet, CBRE’s Leasing Activity Index saw the biggest monthly decline since March 2020, falling 15 points month-over-month to 72, which was still 15 points higher than a year ago.’

It’s impossible to get an apples-to-apples comparison even on potential demand for office space because VTS and CBRE each use its own data, which means both studies are based on self-selected samples and aren’t necessarily representative of national, or even regional, trends. 

There is another important difference. VTS reports numbers on cities, not associated metropolitan areas. CBRE does the opposite. The underlying sampling areas aren’t the same, so the results are unlikely to be parallel.

The good news is that both have seen an increase in demand, suggesting that companies are more interested in taking new space—at some point.

This is where CBRE’s leasing activity measures help explain the trends. Companies immediately sign leases for space. They first start with interest, then find potential choices, undergo due diligence, weigh the alternatives, get brokers involved, then use their own legal resources to negotiate the deals and documents. That’s why CBRE calls interest a leading indicator—because it takes time to get to signing a lease.

However, many companies are still deciding on strategies of permanent versus flexible space and there are also new Covid variants developing. Reasonable certainty is still a long way off, no matter how many studies come out.