Commercial real estate office space owners recently received some good news; demand for their properties is getting back to pre-COVID-19 pandemic levels, GlobeSt.com reports. The national VTS Office Demand Index (VODI) tracks office properties’ tenant hours (in-person and virtual) and noted significant gains in January and February. The VODI is currently 38% lower than it was prior to the pandemic, compared to 85% last May. The national VODI grew 29% in February, a 13 point increase.
“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 statement.
February was also the first month since October 2020 where office space demand increased in every market that VODI tracks. New York City, Seattle and Washington, DC, some of the markets the pandemic most negatively impacted, led the office space demand growth, GlobeSt.com reports. Meanwhile office space demand in New York increased 120% this year and is down 40% from pre-pandemic levels. VODI in the Big Apple has had a steady climb from 35 in December to 77 in February—the index was at 7 in May 2020.
The office space demand rebound isn’t a surprise to all. Choice New York Cos. CEO Michael Feldman was confident last year that New York’s office situation would improve.
“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.”
Seattle has seen office space demand increase more than 180% this year, while its leasing demand is only down 24% from pre-COVID-19 levels last year. The city’s VODI also rose a combined 42 points in January and February. Meanwhile, San Francisco and Los Angeles have made up almost all of their losses since the pandemic began. San Francisco’s demand grew more than 250% during the first quarter of 2021; there was almost no such demand for office space a year ago.
Unfortunately, not every hard-hit market is enjoying a big uptick in office space demand, according to GlobeSt.com. Boston and Chicago saw their VODI scores only increase three and eight points, respectively. Both cities are coming out of periods of flat or negative growth, but VTS believes growth could be, “latent as opposed to absent in these cities.”
Investor KBS also believes there will be a demand for office space, but it will be even more significant this year as the vaccine rollouts continue and the COVID-19 pandemic subsides.
“Office buildings are not going away any time soon,” Giovanni Cordoves, Western regional president, told 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.”
Only handful of CEO’s plan to decrease their office space
Given the overall increase in office space demand, it shouldn’t be too surprising that a number of CEOs want to get back to pre-COVID-19 pandemic use. According to KPMG’s 2021 CEO Outlook Pulse Survey, just 17% of respondents said they will downsize their company’s real estate footprint, GlobeSt.com reports. When KMPG did the survey in August 69% of CEOs said they’d reduce their office footprint. Meanwhile, only 30% of respondents said they’d have most employees working from home between two and three days a week. Even less (14%) said they’d look into shared office spaces to increase employee workplace flexibility.
KPMG’s findings are good news for office landlords, as the outlook for the future of their properties was grim at times. For example, CoreNet Global’s February survey of about 200 people said employees would work about half of the week at the office and rest at home, a remote location or co-working space after the pandemic.
The thinking is if fewer workers are coming into the office, companies don’t need as much space. More than half (54%) of companies surveyed said they expect the overall corporate footprint to shrink within two years. Meanwhile, 14% expect a decrease of more than 30% in space and 31% see an office space drop somewhere between 10% and 30%. Only 9% of respondents forecasted that the office footprint would decrease by less than 10%, GlobeSt.com reports.
Expectations for a return to ‘normalcy’
The KPMG survey also asked respondents when they expected life would “return to normal”, according to GlobeSt.com. About a third of respondents said they think things will get back to normal this year, while 45% anticipate normality in 2022. About a quarter of survey respondents feel the COVID-19 pandemic changed business forever.
As far as when companies will return to work, 65% said they want to wait for a successful vaccine rollout in their key markets before asking employees to return. Meanwhile, 76% of companies surveyed said they’d wait for governments to give the go-ahead to return to normal. Only 5% said they’d base their return on competitive factors.
Joe Dyton can be reached at joed@fifthgenmedia.com.
