For Second Straight Month, New Demand for Office Space Rises
VTS’ Index for October shows “welcomed signs of potential stability.”
The effect of rising interest rates and where the U.S. economy is headed is weighing heavy on everyone’s minds and will continue to temper office use decisions.
Tenants continue to debate whether to hold off on new commitments or adjust the amount of space they need, according to the latest VTS Office Demand Index (VODI) analysis for October.
“Staying on track with seasonal norms and recording the first two-month increase streak since early 2021 are both welcomed signs of potential stability in the market,” said Nick Romito, CEO of VTS, in prepared remarks. “Heading into the end of the year, we’re still left with a lot of unknown.”
VODI Back to July 2022 Level
New demand for office space rose for the second consecutive month, up 8.3 percent in October, according to the Index.
The increase from September and October has fully reversed the VODI’s August decline and brings the VODI back to its July 2022 level.
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.
“Interest from large tenants drove double-digit office demand increases in Los Angeles, Washington D.C., Chicago, and New York City, according to a VTS Office Demand Index (VODI) analysis.
Reaching a ‘New Normal’ Will Take Time
Demand fell in Boston, Seattle, and San Francisco in October with VODI levels dropping 16.1 percent, 20.5 percent, and 23.1 percent, respectively. Notably, Boston’s decline marked its lowest on record.
“Each city’s office demand was closely tied to job postings and interest – or lack thereof – from large tenants,” said Ryan Masiello, Chief Strategy Officer of VTS, in prepared remarks.
“This divergence could be an interesting reflection of how certain industries are still calibrating the mix of on-and-offsite work. Many have settled into more stable patterns of hybrid work, but it’s largely still in flux. How future office use patterns will play out, combined with the typical long lease terms in the office market, means the transition towards a new ‘normal’ of office demand will take some time.”