Office Space Demand at Perilous Low

July was not a good month for selected office demand in Chicago, Boston and New York City, according to VTS’ VODI analysis.

Even worse was activity generally in markets with concentrated finance, insurance, and real estate (FIRE) office use, which experienced the sharpest declines, according to the Index. Each of those four markets relies a great deal on those industries.

Index Is Lowest Since February 2021

Nationally, the index calculated a 17.5 percent month-over-month drop, putting it at its lowest level since February 2021. VTS data show July to traditionally be a weak month for the index, but this mark is three times worse than any year since 2018.

Nick Romito, CEO of VTS, said in a release, “We’re used to seeing demand for office space cool in summer months, but not at this rate. Unique to 2022 is an economic outlook that is continually shifting and is likely contributing to a reduction in new office demand, as uncertainty causes some potential tenants to delay or reconsider their current office space needs.

Romito said that it’s also worth noting that this month’s declines come after three months of relative stability in the VODI.

Colleague Ryan Masiello, chief strategy officer, said the slight cooling of the job market at the city level “does not appear to have impacted new demand for office space so far.”

It should be noted that actual leasing activity in some of these cities is doing relatively well.

Moody’s: Chicago’s Net Absorption Tops in Q2

Last quarter’s net absorption for Chicago, for instance, finished highest in the country and it wasn’t even close, according to Moody’s. “A good marker for demand, Chicago’s increase in occupied square footage of 2.4 million towered over second-place Dallas at 0.9 million SF and completely obliterated the national trend (-8.4 million SF), the firm tells GlobeSt.com.

Avison Young: New York Well Below its 10-Year Average

New York leasing activity is improving, for its part, but has not reached pre-pandemic levels.

Avison Young’s Q2 2022 New York Office Market Report shows that leasing activity through the first half of 2022 reached 14.9 msf, a 25.2% increase from the first half of 2021.

However, in the 10 years leading up to COVID, first-half-year leasing activity has averaged 20.2 msf, placing YTD 2022 at 26.2% below the historical average, according to the firm.

“Trophy properties, or the top 10% of the market, continue to capture an outsized share of demand with 30.9% of leases year to date,” an Avison Young spokesman tells GlobeSt.com.

“However, new additions to the market – particularly sublet space – continue to outpace leasing activity, bringing the total availability rate up to a new peak of 18.6%.”