Office Demand Approaches Pre-COVID Levels in Some Large Markets

One year after the pandemic started, demand for office space in the country’s largest markets is approaching pre-COVID levels and recovery appears to be looming for several markets, reported VTS, New York.

“The past year was one of the darkest periods we’ve seen in commercial office leasing history,” said VTS CEO Nick Romito. “Amid the uncertainty of just how the pandemic would impact businesses and their employees, we went from a period of healthy demand for office space to zero demand almost overnight–it was an alarming swing.”

The VTS Office Demand Index, which tracks in-person and virtual tenant tours of office properties, is currently 38 percent lower than just prior to the pandemic–much improved compared to a low of 85 percent below pre-pandemic levels last May–and significant gains in January and February suggest a recovery is coming.

Romito said his firm saw some demand growth in second-half 2020, but a healthy increase in the first two months of 2021, plus the Biden Administration’s announcement that all Americans will be eligible for the vaccine by May 1 “is providing confidence that a meaningful recovery is on the horizon,” he said.

Over the past three months, the rate of demand has outpaced seasonal norms, with each month outperforming the last, the report said. In February the national VODI increased by 13 points to 58–a monthly growth rate of 29 percent.

Full recovery is “in sight” for some local markets, the VTS report said. February marked the first month since October 2020 in which demand grew in all of the nation’s core office markets tracked by the VODI. Monthly growth rates in February were the strongest in New York, Seattle and Washington, D.C.

Demand for office space in New York City jumped 120 percent since the new year and is now only down 40 percent from pre-pandemic one year ago, the report said. The VODI in New York City equaled 35 in December 2020, 54 in January and 77 in February. At its worst in May 2020, the VODI in New York hit an index low of 7.

After experiencing one of the more significant seasonal declines in Q4 2020, demand for office space in Seattle is up 182.6 percent in 2021 (up 22 and 20 VODI points in January and February, respectively, to 65). Seattle office leasing demand is down only 24 percent from pre-crisis levels one year ago.

The markets closest to regaining everything lost since the start of the pandemic in February 2020 are San Francisco (down 5 percent) and Los Angeles (down 18 percent), VTS said. After experiencing the lowest bottom of all markets with almost no office tenant demand in mid-2020, San Francisco’s VODI experienced strong growth (253 percent) over the last three months, increasing 38 VODI points from 15 in November to 53 in February.

“While it is encouraging that San Francisco has made up almost everything lost since the pandemic started, it is important to remember that demand in San Francisco was depressed leading into the pandemic,” VTS Chief Strategy Officer Ryan Masiello said. “After peaking in early 2019, demand slowed throughout the rest of 2019 and into early 2020, and then the pandemic hit. It will take several more months of exponential growth to get back to pre-2020 levels of demand.”