Author: The Associated Press | Source: The Associated Press
New demand for office space surged in March, up 20 percent from February and 8.2 percent year-over-year. This comes after five months of stagnation in the VTS Office Demand Index (VODI) due to compounding COVID-19 variants and remote work. The VODI tracks unique new tenant tour requirements, both in-person and virtual, of office properties in core U.S. 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.
Despite underperforming relative to the seasonal norm in February, demand for office space is now two-thirds of its pre-pandemic average, up from just half one month ago. March 2022’s growth in demand likely indicates that concerns about the COVID-19 omicron surge eased enough for prospective tenants to tour office space closer to their typical seasonal pace.
“Demand for office space this month is more in line with what we expect to see this time of year,” said Nick Romito, CEO of VTS. “Looking ahead I expect that we’ll continue to see demand ebb and flow in a typical seasonal pattern, but to really get out of the prolonged period of depressed demand we have seen as of late, we’ll need to see demand exceed seasonal norms over the course of many months.”
Nearly All VODI Markets See Demand Rise, Washington, D.C. Makes Notable Recovery
Demand for office space increased in Boston, Chicago, Los Angeles, New York City, San Francisco, and Washington, D.C. in line with each market’s specific seasonal trends. Boston and Washington, D.C. saw the greatest gains in March, 38 and 30 percent respectively, while Los Angeles, San Francisco and New York City all rose between 20 and 25 percent, and Chicago rose more modestly, up only 5 percent.
Notably, Washington, D.C. reversed a significant portion of its nine-month slide in demand for office space and returned to levels last seen in July 2021. Boston, up 38 percent month-over-month to a VODI of 55, saw the largest percent increase of any core office market in March.
“The spring is usually good to Washington, D.C. and this spring, despite all of the hurdles, is no different,” said VTS Chief Strategy Officer Ryan Masiello. “What remains to be seen is if the near-term momentum is sustainable. If it is, demand for office space could easily reach two-year highs over the next few months.”
Seattle, traditionally the most volatile market, was down sharply and is the only core market to see a decline in March. While Seattle’s office demand has been boosted by particularly strong gains in office-using employment in recent months, the latest decline brings it in line with other remote work-friendly markets like San Francisco and Boston.
VTS Office Demand Index (VODI)
| National | BOS | CHI | L.A. | N.Y.C. | S.F. | SEA | D.C. | |
| Current VODI (March) | 66 | 55 | 59 | 85 | 76 | 37 | 48 | 78 |
| Pre-pandemic VODI (March 2020) | 102 | 90 | 71 | 102 | 124 | 69 | 98 | 134 |
| Month-over-Month VODI Change (%) | 20% | 37.5% | 5% | 20% | 25% | 23% | -31% | 30% |
| Month-over-Month VODI Change (points) | +11 | +15 | +3 | +14 | +15 | +7 | -22 | +18 |
| Year-over-Year VODI Change (%) | 8.2% | 37.5% | 11.3% | 7.6% | 16.9% | -27.5% | 28.4% | 1.3% |
| Year-over-Year VODI Change (points) | +5 | +15 | +6 | +6 | +11 | -14 | -19 | +1 |
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