Nyenta.com - Employers Switch their Focus to the Long Game; Swings in Local COVID-19 Cases no Longer Impact Demand for Office Space

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NEW YORK--(BUSINESS WIRE)--Nationally, new demand for office space in core markets increased by 21 percent, or seven index points, from December 2020 to January 2021, according to the VTS Office Demand Index (VODI). While the December-to-January growth rate is on par with previous years, the VODI's rise in January still represents a smaller burst in tours and toured space than in pre-crisis times. The VODI tracks tenant tours, both in-person and virtual, of office properties across the nation and is the only commercial real estate index to track tenant demand.

In January 2021 the national VODI was 40; by comparison, the VODI in January 2020 was 99, representing a year-over-year decrease in demand of 59.6 percent. A VODI of 100 represents an office leasing market with demand activity levels on par with January 2018 - a relatively stable time in office leasing.

Local COVID-19 caseloads, once the primary driver of relative demand trends in local markets, no longer carry the same influence. While a market hit harder by COVID-19 often led to a more dramatic fall to bottom in the early spring of 2020, markets with some of the highest increases in COVID-19 cases over the past three months saw demand pick up the most. Instead, demand in local markets is now more closely tied to local near- and long-term dynamics including office-using job growth, expected vaccine distribution, the anticipated return of urban amenities, and the potential for long lasting public and in-office safety measures.

"It was no surprise to see demand rise overall in January, as that happens every year, but looking at market-by-market trends shows us that employers are changing their focus," said VTS CEO, Nick Romito. "Given the ups and downs of COVID-19 cases are having less impact on office demand, many employers are now making long-term decisions rooted in the mental and physical health of their workforce, office culture goals and the local economic and leasing climate. All that said, we are still quite far from a full recovery."

Hyper-local factors underlie local market demand

Despite having some of the greatest spikes in COVID-19 cases in January, the West Coast markets of Seattle, San Francisco, and Los Angeles experienced the greatest growth in tenant demand although they have markedly different reasons behind their growth. Chicago and Boston had the smallest growth in VODI points, four points and one point respectively.

After experiencing the lowest bottom of all markets with almost no office tenant demand in 2020, San Francisco experienced by far the strongest growth over the last three months, increasing 162 percent from October to January, or 21 VODI points. By the end of January 2021, 58 percent of the demand lost in the early days of the pandemic had been recovered, the second-highest rate of all gateway markets. Down 39 percent, San Francisco is second only to Los Angeles (down 23 percent) in the return to pre-COVID-19 levels. This is in spite of record COVID-19 cases over the last quarter.

"There are many things prospective tenants are evaluating when considering when and where to lease office space in 2021– does a building provide the amenities to keep their employees safe and well-connected, are there tax or financial incentives to stay or leave and even how much space they'll need if they move to a more permanent remote or partial remote workforce," said VTS Chief Strategy Officer, Ryan Masiello. "In San Francisco, for example, some tenants are seizing the opportunity to capitalize on softening rents and increasing concessions as office-using employment is rising."

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VTS Office Demand Index (VODI)

	National	BOS	CHI	L.A.	N.Y.C.	SEA	S.F.	D.C.
January 2020 VODI	99	111	56	86	134	105	71	106
February 2020 VODI (pre-crisis)	94	103	55	95	128	86	56	110
December 2020 VODI	33	36	15	62	35	23	25	40
January 2021 VODI (current)	40	37	19	73	43	35	34	48
VODI Change from February 2020 to current (Jan.) (%)	-57.4%	-64.1%	-65.5%	-23.2%	-66.4%	-59.3%	-39.3%	-56.4%
Month-to-Month VODI Change	7	1	4	11	8	12	9	8
Month-to-Month VODI Change (%)	21.2%	2.8%	26.7%	17.7%	22.9%	52.2%	36%	20%
Quarter-to-Quarter VODI Change	-2	-10	-7	5	0	1	21	-18
Quarter to Quarter VODI Change (%)	-4.8%	-21.3%	-26.9%	7.4%	0%	2.9%	161.5%	More on Nyenta.com NYC ACS Lawyer Looks at How to Sue ACS Partners In Rhyme Ice-T And Afrika Islam Back At It!!! AI.Reverie Appoints Former NVIDIA Deep Learning Guru Aayush Prakash as Head of Machine Learning American Police Officers Alliance Partners Sponsors Pro-Constitutional Rights Event in New York INCINQ - the creative concept of online dating app -27.3%
Year-to-Year VODI Change	-59	-74	-37	-13	-91	-70	-37	-58
Year-to-Year VODI Change (%)	-59.6%	-66.7%	-66.1%	-15.1%	-67.9%	66.7%	-52.1%	-54.7%

Los Angeles leads all markets in progress toward a full recovery due to the steady increase in jobs in the creative industry occupying office space. Los Angeles' office demand in January is now only down 15 percent from January 2020. For perspective, the next market closest to meeting their demand from one year ago, San Francisco, is still down 52 percent.

Seattle experienced unexpectedly strong demand in January, up 12 VODI points, but is still down a remarkable 59 percent from pre-crisis levels and 67 percent year-over-year.

Washington, D.C. saw modest growth in January but is expected to see significant gains as the new administration settles in. The January bump helps to reverse the most dramatic slide in office demand over Q4 – a fall from 66 to 40 from October to December which was largely due to uncertainty and turmoil within the federal government.

New York City saw marginal gains in office-using unemployment but saw some growth in the VODI, up 8 points to 43 in January. However, the city remains furthest from pre-crisis levels (down 66 percent from February 2020) of all core office markets covered in the VODI report. Soft demand and lower rents continue to provide an opportunity for tenants to secure space in the most coveted buildings. The flight to quality in office demand is still significant with Trophy and Class A taking up 82 percent of all toured space in January.

Both Chicago and Boston continue to struggle and have failed to gain meaningful momentum since bottoming out in April 2020, down 66 and 67 percent year-over-year and 66 and 64 percent from pre-crisis, respectively.

About VTS

VTS is commercial real estate's leading leasing, marketing and asset management platform where the industry comes to make deals happen and real-time data comes to life. The VTS Platform captures the largest first-party data source in the industry, which delivers real-time insights that fuel faster, more informed decision making and connections throughout the deal and asset lifecycle. VTS Data, the industry's only forward-looking market dataset, and VTS Market and Marketplace, the industry's first integrated online marketing solution, give landlords, brokers, and tenants unparalleled visibility into real-time market information and the direct connectivity to execute deals with greater speed and intelligence at every point in the planning, marketing, leasing, and asset management cycle.

More than 60% of Class A office space in the US and 11B square feet of office, retail, and industrial real estate globally is managed on the VTS platform. VTS' user base includes over 45,000 CRE professionals including respected industry leaders like Blackstone, Brookfield Properties, LaSalle Investment Management, Hines, Boston Properties, Oxford Properties, JLL, and CBRE. To learn more about VTS, and to see our open roles, visit www.vts.com.

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