Office Market Trends: 'The Worst is Officially Behind Us'

Sustained increasing demand for office space across the country since late 2022 signals that the bottom of the market has passed, according to real estate technology platform VTS. Demand began ticking up in late 2022 and early 2023, and since then, a substantial period of stability and growth within the office market and supporting economic factors signal a rebound.

This determination is based on the VTS Office Demand Index (VODI), which tracks unique new tenant tour requirements of office properties in core U.S. markets. VODI provides an early indicator of upcoming office leasing activity.

The index shows that demand for office space has grown for over 12 months, ending the second quarter up 17 percent year-over-year and up 34 percent from the VODI bottom in December 2022.

A notable shift in office-using employment supports the determination that demand for office space has bottomed, VTS said. After peaking in August 2022, office-using employment fell by 3.9 percent by early 2024, but that trend has stopped, and growth has remained flat since then. In addition, work-from-home rates have declined in recent months, driving greater demand for office space.

“They say you can only see a market bottom after it has long passed, and demand for office space is no different. In the months after the now-declared bottom, the national needle has moved up slowly, making it vulnerable to a quick about-face amidst economic headwinds,” said Nick Romito, CEO of VTS. “However, the growth VODI has experienced in the past 18 months combined with positive data on the office-using workforce tells me that the market has reset and the worst is officially behind us.”

This national office trend does not filter evenly to local markets. However, some markets such as Los Angeles and New York City, have experienced healthy growth, while others, such as San Francisco and Washington, D.C., have largely remained unchanged for an extended period. Los Angeles saw demand for office space surge in the second quarter, briefly surpassing its pre-COVID average, with new demand for office space fueled by an increase in the average size of office space employees are seeking. New York City has experienced a similar trajectory overall but showed some weakness during the second quarter.

In San Francisco, demand for office space remains volatile, due largely to its tech-heavy workforce that continues to embrace remote work at a scale unlike other industries.

“Markets heavily reliant on the tech sector, such as San Francisco and Seattle, are following a substantially different post-COVID path than more industry-diverse markets like LA and New York City, and it may take a long time before we see office demand return to pre-COVID rates in San Francisco and Seattle,” said VTS chief strategy officer Ryan Masiello.