The Delta variant of the coronavirus hasn’t impacted office space occupancy nearly as badly as the COVID-19 initially did, according to the latest VTS Office Demand Index (VODI), GlobeSt reports. The newly released data, which runs through August, showed that new demand for office space increased to a 15-month high and is currently just 13% below pre-COVID-19 levels.
“When the pandemic first hit and the world came to a halt, there was a clear correlation between rising COVID-19 cases and falling demand for office space—as cases went up, demand went down,” VTS CEO Nick Romito said in a statement. “Now, even as cases have risen exponentially over the past few months due to the Delta variant, we’re not seeing the same correlation.
“While it may be a bit premature to say that there will not ever be a material impact on new demand and office-using employment as of right now, we’re not seeing it. Companies, even if delayed, are making plans to get their employees back in the office and that bodes well for the office space market.”
Year-over-year office space demand up over 200%
New demand for office space has bounced back considerably since last summer—up 235% year-over-year, according to VODI. The metric tracks unique tenant tours, in-person and virtual, of office properties in core U.S. markets. It’s also the earliest indicator of upcoming office leases and is the only CRE index that that tracks new tenant demand. VODI rose 3.6% from July to August and the national VODI increased every month outside of July, during 2021.
Additionally, office-using employment also bounced back in July with a monthly annualized growth rate of 4.3%, GlobeSt reports. Prior to that, office-using employment had its slowest growth in 12 months. The information services sector saw the largest office-using job growth annualized increase at 11.8%, according to the July Bureau of Labor Statistics job report. Business and professional services saw a 6% increase while employment in finance, insurance and real estate dropped by 5.2%.
The office isn’t dead, just different
“Though we’re standing on shifting sand and it could be 24 to 36 months before it stops, the office is not collapsing, it’s evolving,” Petra Durnin, head of Market Analytics for Raise, a company that provides brokerage, workplace strategy and project management, told GlobeSt.
“Companies are accessing better solutions to attract and retain high-quality talent. The shift from highly centralized offices near talent pools to a distributed workplace strategy means many companies are adopting not only a hybrid model but a hub/spoke/remote model and evaluating multiple locations across the U.S. with a heavy focus on sublease space or coworking. The whole shift in how and where people work is a rebalancing effort to meet talent where talent is.”
Durnin also added that the flexible office space use trend is growing, serving as a buffer between full-time office work and remote-only options. Coworking spaces are expected to continue to get significant in 2022 as well.
“These dynamic spaces now account for a larger percentage of occupiers’ real estate portfolios; previously these occupiers either owned or leased their locations,” Durnin told GlobeSt. “Flex providers are meeting this growing need and many now offer the option to transfer unused membership balances
to other locations. Companies are no longer locked into a single location and with the redistribution of talent, flex space allows them to test fit new locations instead of making massive lease commitments.”
Chicago, Seattle return to pre-COVID levels
Both Seattle and Chicago saw office space demand exceed their pre-pandemic levels with VODI scores of 110 and 104, respectively, GlobeSt reports. The pre-pandemic average for all U.S. cities was 100 prior to the pandemic, which was the average rate in 2018 and 2019. Meanwhile, Los Angeles and New York are both near their pre-pandemic levels (97 and 96, respectively), but were close to 100 the last three months.
Cities like Washington, D.C. have not been as fortunate, however. The nation’s capital has seen its office space demand fall three straight months—a 40% drop during that time frame. Washington D.C.’s VODI was 95, near its pre-COVID average, in May, but dropped to 57 in August.
“The health of individual office markets is hyperlocal,” VTS Chief Strategy Officer Ryan Masiello said in a statement. “Local vaccination rates, government mandates, and local sentiment are just a few of the drivers of new demand for office space. That said, the wide-sweeping vaccine announcement made this month by President Biden—impacting up to 100 million U.S. workers employed with the federal government—could start to materially change the need for office space in the coming months across the nation, but especially in Washington, D.C. as institutions prepare for their employees’ return to the workplace.”
Joe Dyton can be reached at joed@fifthgenmedia.com.
