Office Demand Declines in Several Major Markets

There were shorter waits—if waits at all—for elevators in major urban area offices in June, a trend that Nick Romito, CEO of VTS, called “concerning” in a release this week about office activity.

Demand remains just shy of two-thirds of normal in some areas, according to a VTS Office Demand Index (VODI) analysis and “remote friendliness” continues to be a decisive factor.

Of the markets covered in the report, the cities with higher rates of remote-friendliness—Boston, San Francisco, Seattle, and Washington, D.C.—continue to lag those whose economies have fewer remote-friendly jobs, such as Chicago, Los Angeles, and New York City.

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

Boston and New York Demand Plunging

Boston and New York saw the greatest declines in June. Demand for non-life-science office space fell 23 percent from May after five consecutive months of increasing demand. Demand there is now less than half of what was considered to be normal prior to the pandemic.

In New York City, demand gained from the past four months was lost in June. The NYC market is now just above two-thirds of its pre-pandemic normal at 68 percent.

Seasonality could be at play, according to the report.

“While not every market experienced radical monthly changes in June, I am closely monitoring a potential shift in both New York City and San Francisco,” Romito said.

“June has historically been a hot month for growth in New York City, so to see such a large swing in the other direction is concerning. It may be that the seasonal decline we typically see later in the summer has moved forward, or it could be a true fundamental change. It is worth watching over the next few months.”

San Francisco has seen an extended period of growth–rising 70 percent in just the past four months, Romito said. “However, the underlying market fundamentals do not, at this time, support a robust recovery,” he said. “I would not be surprised to see demand for office space in San Francisco fall again soon.”