While COVID-19 cases are no longer an inhibitor of demand for office space, the pandemic has fundamentally changed the way we work, and the effects are being felt in the office leasing market. Markets with a greater percentage of remote-friendly jobs are recovering more slowly while the opposite is true for markets with fewer remote-friendly jobs.
Some of that change is likely to persist in the interim, with more pronounced implications for cities that have a large share of remote-friendly jobs including Seattle, Boston and San Francisco, consistent with the picture emerging from the VTS Office Demand Index (VODI). The VODI tracks tenant tours, both in-person and virtual, of office properties across the nation, and is the earliest available indicator of upcoming office leases, as well as the only commercial real estate index to explicitly track tenant demand.
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In Seattle, Boston, and San Francisco, the share of jobs that are remote-friendly is among the highest in the nation, and not coincidentally those markets have also recovered the least from their pre-pandemic level of demand, still down 39, 43 and 46 percent from their 2018-2019 average, respectively. In contrast, markets with a substantially lower share of remote-friendly jobs, Chicago, New York and Los Angeles, are only down 14 and 15 and 24 percent from their pre-pandemic values, respectively. The figures for remote-friendly job shares are drawn from a study by Apartment List which builds on prior academic work (Dingel & Neiman (2020).
Washington, D.C., an exception to the pattern with a high rate of remote-friendly jobs and a further-along recovery, has a large share of government employers who may be less willing to keep remote work arrangements in place compared to employers in Boston, San Francisco and Seattle.
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“The pandemic didn’t just change the way we work, it changed the way we live. Many workers have found value in remote or hybrid work and may be reluctant to go back to the way life was pre-pandemic, said VTS CEO, Nick Romito. “In cities with higher rates of fully-remote jobs, hiring and retaining talent means employers will need to provide choices and flexibility – including fully-remote and fully in-office.”
Nationally, following a particularly sharp burst of recovery in early 2021, demand for office space took a breather in May. After rising 173 percent in the first four months of the year, demand for office space receded modestly in May, down 8.5 percent from April, but its level remains 5 times higher than the May 2020 pandemic low. The decline, likely fueled by a seasonal lull and an easing of pent-up demand, marks a reversion to office demand’s normal see-sawing behavior.
“Demand for office space tends to follow seasonal patterns; it should not be concerning that most markets saw demand for office space taper in May,” said VTS Chief Strategy Officer, Ryan Masiello. “Depending on the market, we anticipate that demand will continue to fluctuate this summer before rising again in August and September.”
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