The winter months are typically a slow, stable time of year for the office leasing market, and 2023 kicked-off maintaining its seasonal track. According to the latest VTS Office Demand Index (VODI) analysis, new demand for office space in January was flat month-over month, maintaining a VODI level of 46. This is in line with previous January reports. Office demand tends to exhibit an uptick in the months of spring and VTS anticipates this year will be similar to past ones in this respect.
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.
Nationally, the VODI remained 20.7% below its level a year ago. It has, however, continued to recover from COVID-19 impacts. According to VTS’ analysis, demand for new office space has recovered 35.7% — about one third — of its initial decline at the onset of the pandemic and is just under half of the 2018-2019 average.
“While January was a relatively quiet month both nationally and locally, it’s encouraging to see some momentum in a return to on-site vs. remote work for companies across the country,” said Nick Romito, CEO of VTS. “January is generally a time for companies to reevaluate strategies before ramping up in February and March. It will be interesting to see if momentum continues to build for more on-site work and for the leasing market.”
Locally, all cities tracked by the VODI declined year-over-year, with the largest declines reported in San Francisco, whose VODI fell 37.8% year-over-year, followed by Seattle and Chicago whose VODIs fell 30.3% and 29.9% year-over-year, respectively. The smallest decline was in Boston, whose VODI fell 10.5% from a year ago, followed by New York City and Washington, D.C., both of which declined 11.9% compared to this time last year.
New York City and Los Angeles’ demand for new office space are the farthest along on the road to recovery, while San Francisco is at the opposite end of the spectrum. New York City has regained almost 50% of its initial pandemic decline and Los Angeles 40% of its decline; San Francisco has only recovered 25%. Contributing to San Francisco’s slower recovery is likely due in part to its tech industry-dominated economy. That sector has historically been more remote-friendly, even prior to the pandemic. New York City, while it has a formidable tech sector, has a strong presence of more traditional sectors that favor on-site work.
