Demand for office space continued to fall this summer, thanks in part to rising interest rates and persistent inflation.
That’s the bad news from the latest VTS Office Demand Index, or VODI.
According to VTS, Chicago, Boston and New York City saw the largest declines in demand for office space in July. That’s partly because these cities have a large number of finance, insurance and real estate companies, sectors that are particularly sensitive to rising interest rates.
VTS’ VODI score, a measure of office demand, tracks tenant tour requirements, both in-person and virtual, of office properties in key U.S. markets. It is an early indicator of upcoming office leasing activity and the only commercial real estate index that tracks new tenant demand.
Across the United States, new demand for office space fell 11 VODI points to 52 in July. That represents a 17.5% month-over-month drop, pushing the index to its lowest level since February of 2021.
“We’re used to seeing demand for office space cool in summer months, but not at this rate,” said Nick Romito, chief executive officer of VTS, in a statement. “Unique to 2022 is an economic outlook that is continually shifting, and is likely contributing to a reduction in new office demand, as uncertainty causes some potential tenants to delay or reconsider their current office space needs.”
Demand for office space in Chicago dropped 29.9%, falling to below half its pre-pandemic pace, VTS said. Chicago had a VODI score of 47 this July, while its average pre-pandemic VODI score was 100.