One year after the COVID lockdowns began, demand for office space is finally approaching pre-pandemic levels.
The national VTS Office Demand Index (VODI), which tracks tenant tours, both in-person and virtual, of office properties across the nation, posted significant gains in January and February and is now 38% lower than it was just before the pandemic. By comparison, it was 85% below pre-pandemic levels last May.
In February, the national VODI grew 29%, increasing by 13 points to 58. “While we saw some growth in demand in the back half of 2020, the exponential increase in the first two months of 2021, combination with the announcement from the Biden Administration that all Americans will be eligible for the vaccine by May 1, 2021, is providing confidence that a meaningful recovery is on the horizon.” VTS CEO Nick Romito said in a prepared statement.
February also marked the first month since October 2020 where demand grew in all of the office markets tracked by VODI. Previously hard-hit markets New York City, Seattle and Washington, D.C. led the growth.
In New York, demand for office space jumped 120% in 2021 and is down 40% from pre-pandemic levels. The VODI has steadily risen from 35 in December to 77 in February after hitting a low of 7 in May 2020.
Last year, some observers, like Michael P. Feldman, CEO of Choice New York Cos., predicted that the office situation would improve in the city.
“At some point, we’re going to have our arms wrapped around this thing,” Feldman said at the time. “And most things will go back normal. To me, it is going to look more like the old normal than most people think.”
While Seattle experienced seasonal declines in Q4 2020, demand is now up 182.6% in 2021. It rose 22 and 20 VODI points in January and February, respectively, to 65. The city’s leasing demand is now only down 24% from pre-crisis levels one year ago.
Two California markets, San Francisco (down 5%) and Los Angeles (down 18%), have almost regained their losses since the beginning of the pandemic. San Francisco’s VODI picked up 38 VODI points from 15 in November to 53 in February, jumping 253% over the last three months. In mid-2020, there was almost no demand in the city.
“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 in prepared remarks.
Not every hard-hit market is experiencing rapid recovery, though. While Boston and Chicago gained 3 and 8 index points in February, respectively, they are coming out of a period of flat or negative growth. VTS thinks growth could be “latent as opposed to absent in these cities.”
VTS isn’t the only source seeing strength in the office market. Investor KBS says that there will always be demand for office space, but with the vaccine rollout and an end in sight for the pandemic, it is bullish on office activity this year.
“Office buildings are not going away any time soon,” Giovanni Cordoves, Western regional president, tells GlobeSt.com. “As long as workers have a need for community and employers strive for ingenuity and collaboration, there will be a demand for office space. Additionally, as the COVID-19 vaccine becomes more widely available and people feel safe and comfortable, well-amenitized office properties will once again be in high demand.”