US office demand enjoyed a strong start to the spring season, according to the latest VTS Office Demand Index (VODI). The index, which tracks new tenant tour requests of office properties in core U.S. markets, rose 31.3% from February to March of this year.
The national demand for office space in March exceeded the month-over-month growth recorded in the pre-pandemic years of 2018 and 2019. The VODI also reported that all the cities it tracked saw office demand increase in March, with five of the seven cities reporting office demand jumps of more than 30% on a month-over-month basis.
The VODI increased 15 points to a level of 63 in March, shifting away from the relatively stable levels seen during the past few months. Despite its strong performance this year, the March VODI was still down 4.5% from one year earlier. In good news for the office sector, the year-over-year gap has narrowed significantly. In February, the VODI was down 12.7% from a year earlier.
The office market, of course, is still stuck in a type of limbo. Employers are still determining when and how to bring their employees back to the office, with many settling for now on a hybrid approach, allowing their workers to log some of their hours at home and others in the office.
This has meant that many companies don’t need as much office space. It’s also hurt downtown office markets across the country, as good chunks of the nation’s urban office space remains empty.
“The Fed’s streak of interest rate hikes and a spectrum of severe weather lashing all areas of the country in recent months undoubtedly sidelined office touring activity and leasing decisions for many employers,” said Nick Romito, chief executive officer of VTS. “The sluggish start to the year left us in limbo as to whether we’d see normal levels of spring activity return. Thankfully, the office leasing market had its spring awakening, and then some.”
San Francisco saw the largest jump in its VODI, rising 69% from February to March to a level of 49. Office demand in both Boston and Los Angeles jumped 42% in March, followed by New York City and Washington, D.C., whose VODI levels rose 35.7% and 32.7% month-over-month.
Chicago and Seattle were the exceptions in March, seeing relatively modest single-digit office demand increases. Seattle’s VODI increased 6.5% month-over-month and Chicago’s VODI just 3.8%.
The VODI 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. It is used by landlords, asset managers, and brokers to make data-driven decisions. The strong spring season demand could be a sign that the US office market is recovering from the impact of the COVID-19 pandemic
