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April 2024
VTS has shifted the cadence of the VODI report from monthly to quarterly and is retiring its standalone Greenshoots Report. The March 2023 VODI report was the final monthly report. The quarterly VODI report will be published in January, April, July, and October capturing data and findings from VTS over a three-month (quarterly) period moving forward. The quarterly VODI report will include select data points from the former VTS Greenshoots report, providing all your need-to-know trends and takeaways for the office market in one comprehensive report. For questions, data inquiries or to connect with a VTS spokesperson, contact eric.johnson@vts.com.
VTS is the leading provider of leasing, marketing, asset management, and tenant experience software for commercial real estate landlords, with market share averaging over 80% in core U.S. office markets. The VTS platform captures, aggregates, and anonymizes supply and demand data across all office asset classes and age segments. Due to VTS’ market share and the multiple spaces considered by tenants in a given search, VTS sees 99% of all newly created tenant requirements within the markets it serves. With this unprecedented view, VTS has developed an index, the VTS Office Demand Index, published monthly, to provide landlords, brokers, tenants, and the business community with visibility into a previously opaque segment of the market: real-time tenant demand in the US office leasing market. The VTS Office Demand Index (VODI) is the earliest look into the health of the office market. The VODI, as an index capturing actual market actions of potential tenants - promises to be a source of greater certainty and the first to actually capture the demand for office space as it evolves during this critical period. The VODI reflects the total square footage of unique tenant requirements surfaced by touring activity in a given month relative to the total square footage observed in VTS’ expansive network of leasing, marketing, and asset management software. Accounting for the total square footage observed helps distinguish changes in the demand for office space from the growth of VTS’ reach, as well as from changes in the supply of office space, e.g. due to fluctuation in vacancy rates or new construction. To enhance its interpretation and its comparability across regions, VODI is reported as an indexed value using the 2018-2019 average level as a baseline valued at 100. The index is not seasonally adjusted, but it is smoothed using a 3-month trailing average. To ensure the viability of VTS data for market insight, VTS suppresses monthly VODI data points informed by less than four customers, as well as all data aggregated prior to January 2018. The markets referred to in this report correspond to the named cities, not metropolitan areas. The VODI report includes analysis and commentary from MetroSight.
Media Contacts
LAUREN RIEFFLIN Kingston Marketing Group lauren@kingstonmarketing.group ERIC JOHNSON VTS eric.johnson@vts.com
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The office market, summarized in under 2 minutes
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Maximilian Saia, VP of Investor Research, is here to walk you through the key trends impacting demand in the office sector for January.
Despite a relatively modest spring boost, the office market continued to thaw, with March marking the VODI’s ninth straight month of positive year-over-year growth.
NEXT
After rebounding for most of 2023, work-from-home rates have been plummeting since October and are now the lowest they have been since the onset of the pandemic. The gap in office demand between the more-remote-friendly and less-remote-friendly cities has widened as well, reflecting differing industry attitudes toward remote work.
At the other end of the spectrum, new demand for office space in Washington, D.C., was down 32.3 percent year-over-year, though it held steady on a quarterly basis.
In March, Los Angeles and New York City attained their highest new office demand levels since August 2021. Even if those cities’ VODIs are not quite back to the pre-pandemic normal, they are at least approaching it.
NEXT
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Despite a relatively modest spring boost, the office market continued to thaw, with March marking the VODI’s ninth straight month of positive year-over-year growth.
Explore nationwide trends
In March, the national VODI increased from 58 to 65 percent of its average pre-pandemic level from 2018-2019. While that amounts to a 12.1 percent monthly increase and an 18.2 percent increase on a quarterly basis, it coincides with the typical seasonal boost of spring.
This year’s 12.1 percent increase is consistent with the seasonal trend but is modest compared to recent years’ March spring boost. With the exception of 2020, when March marked the onset of the COVID-19 pandemic, the March VODI has seen increases ranging from a low of 16.7 percent in March 2018 to an abnormally sharp high of 45.2 percent in March 2021, when the VODI emerged from the pandemic.
In addition to the seasonal boost to new demand for office space, the economy's resilience is also helping support new demand. National job growth continued to positively defy forecasts of a cooling labor market, as the economy added approximately 832,000 jobs in the space of three months. Considering the broader time span of the post-pandemic period, the thawing of new office demand appears to be ongoing.
Ostensibly, the national VODI increased only 3.2 percent year-over-year, with its level in March (65) only slightly surpassing the highs of 2023 (63 in March and 64 in May) and falling just short of the 2022 highs (66 in March and 67 in May).
However, the VODI’s year-over-year increase is now in its ninth consecutive month of positive growth. Using fitted trend lines for the period between October 2021 – when the Post-Vaccine Wave of new office demand subsided – and November 2022, and the period since then, helps visualize the upward trend.
In the previous edition of the VODI we stated that “if the growth continues to gain momentum, 2023 will have been the year of inflection in which new demand for office space bottomed out.” We still believe that to be true. That said, pace matters. If we were to extend the current trend line as-is, it would take 70 months to recover to the pre-pandemic normal. However, if momentum continues to grow, we could see things change more quickly.
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New Demand for Office Space
Over the Pandemic: An Illustration
Is demand
finally thawing?
Pre-Pandemic
The Crash
The Trough
Read more
Read more
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The Reset
The Stagnation (The New Normal)
Read more
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The Stagnation (The New Normal)
Since October 2021 the VODI has been largely stagnant. Although it has trended downward slightly over the period, it has been almost flat. Nationally, over the entire period since October 2021, the VODI has remained within a narrow range between 46 and 67. With work-from-home levels remaining persistently elevate, the VODI appears to have settled into a post-pandemic state.
The Reset
After vaccines were introduced in early 2021 a sense of return-to-normalcy pervaded. Nationally, the VODI rose from 33 in January 2021 to 85 in June 2021, as demand that had been waiting on the sidelines during The Trough entered the market all at once in a short period. Once that pent-up demand was spent, the VODI quickly subsided from 87 in August 2021 to 61 in October 2021. Although cities whose economies are more remote work-friendly exhibited substantially lower levels of new office demand, all cities experienced a reset.
The Trough
From June 2020 through the end of that year, new office demand generally remained very low. In some cities, such as Boston, Chicago, and Washington, D.C., the VODI remained more or less flat during this period. In others, such as San Francisco and Seattle, and most notably in New York City and Chicago, this period saw new office demand begin to recover, foreshadowing the phase that was to follow.
The Crash
In Spring 2020 new office demand fell sharply to the “pandemic low.” Nationally, the VODI fell from 102 in March 2020 to 16 in June 2020, a decline of 84 percent. In some cities the sharp fall was followed by a quick v-shaped rise (New York City and Los Angeles); In others, there was a prolonged u-shaped trough (Washington, D.C., San Francisco, Boston, Chicago, and Seattle).
Pre-Pandemic
From January 2018 to March 2020, new office demand fluctuated around a level of 100. In some cities, there was a noticeable downward trend in advance of the pandemic: Chicago, Los Angeles, Seattle; in the other cities the VODI was more ambiguous as to whether it was flat or slightly upward trending.
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NATIONAL
After rebounding for most of 2023, work-from-home rates have been plummeting since October and are now the lowest they have been since the onset of the pandemic.
Economic and social impacts on VODI
View impact on VODI
We have previously used the occupational mix in VODI cities to group them into the so-called “more-remote-friendly” and “less-remote-friendly” cities. We labeled Boston, San Francisco, Seattle, and Washington, D.C., as remote-friendly cities because they have some of the nation’s very highest shares of workers whose jobs can be done remotely. Although Chicago, Los Angeles, and New York City are also above the national average in terms of their shares of such jobs, their shares are substantially lower than the previous group’s, so we labeled them the less-remote-friendly cities.
Since October 2020, the average VODI of the remote-friendly group of cities has been consistently lower than that of the less-remote-friendly group, and that gap appears to be growing. From October 2020 to September 2023, the average gap between the two groups was 28.3 percent, but in the six months from October 2023 to March 2024, the average gap was 37.1 percent.
In a sense, we are seeing America’s largest cities diverge into two stylized groups: One in which working from the office remains the norm, even if it happens a bit less often, and another in which a seemingly permanent cultural shift is taking shape, with expectations to match. Moreover, work-from-home has been more persistent in the U.S. than in the rest of the world, making the remote-friendly cities’ situation not only divergent from the rest of the country, but unique on a global scale.
As we have noted in past VODI reports and other VTS publications, that gap is driven to a large extent by a divergence in the tolerance for remote work across different industries and lines of work, which are over-represented in remote-friendly cities. The TAMI sector, for example, has seen a substantial decrease in new demand for office space since the onset of the pandemic. In contrast, the FIRE sector has seen a modest increase, and the remaining “third sector” has seen an even greater one.
In VODI markets in which industries amenable to work-from-home are more prevalent, like San Francisco and Seattle, we are beginning to see a weaker connection between the strength of the labor market and that of the office market. In such places, it is now more tenable to see a struggling office sector alongside a strong economy.
SEE LOCAL TRENDS
In a sense, we are seeing America’s largest cities diverge into two stylized groups: One in which working from the office remains the norm, even if it happens a bit less often, and another in which a seemingly permanent cultural shift is taking shape, with expectations to match. Moreover, work-from-home has been more persistent in the US than in the rest of the world, making the remote-friendly cities’ situation not only divergent from the rest of the country, but unique on a global scale.
As we have noted in past VODI reports and other VTS publications, that gap is driven to a large extent by a divergence in the tolerance for remote work across different industries and lines of work, which are over-represented in remote-friendly cities. The TAMI sector, for example, has seen a substantial decrease in new demand for office space since the onset of the pandemic. In contrast, the FIRE sector has seen a modest increase, and the remaining “third sector” has seen an even greater one.
In VODI markets in which industries amenable to work-from-home are more prevalent, like San Francisco and Seattle, we are beginning to see a weaker connection between the strength of the labor market and that of the office market. In such places, it is now more tenable to see a struggling office sector alongside a strong economy.
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NATIONAL
In a sense, we are seeing America’s largest cities diverge into two stylized groups: One in which working from the office remains the norm, even if it happens a bit less often, and another in which a seemingly permanent cultural shift is taking shape, with expectations to match.
Economic and social impacts on VODI
Read more national VODI trends
SEE LOCAL TRENDS
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The gap in office demand between the more-remote-friendly and less-remote-friendly cities has widened as well, reflecting differing industry attitudes toward remote work.
After spiking to unprecedented highs in the early stages of the COVID-19 pandemic, work-from-home rates fell quickly. According to data from WFH Research on the share of workdays worked from home (including in non-office using industries), aside from a pause in 2021 when the Delta and Omicron variants emerged, work-from-home levels kept falling until the beginning of 2023.
During most of 2023, work-from-home rates remained stable and even rose somewhat, but since November, they have begun plummeting sharply again, suggesting that perhaps statements around work-from-home levels stabilizing were premature.
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In March, Los Angeles and New York City attained their highest new office demand levels since August 2021. Even if those cities’ VODIs are not quite back to the pre-pandemic normal, they are at least approaching it.
Read VODI impacts on local markets
At 74, the Los Angeles VODI was 32.1 percent above its level of 56 three months ago, and up 19.4 percent year-over-year. With the exception of a short-lived spike in May 2022, the current reading is Los Angeles’ highest since the Post-Vaccine Wave in the Summer of 2021, when the city’s VODI briefly surpassed 100.
At 74, the Los Angeles VODI is also the highest VODI among all cities reported. The city’s VODI growth owes primarily to a spike in tenants seeking large spaces, greater than 50,000 square feet. New demand for spaces of that size in Los Angeles is now higher than at any time since June 2021. While the WGA strikes may have hurt demand in Los Angeles as of recent, the tech sector made up for that recently.
In contrast, at 21, the Seattle VODI was 43.2 percent below its level of 37 in June, and down 52.3 percent year-over-year.
Flowing at only about one-fifth of its pre-pandemic pace in 2018-2019, Seattle’s VODI is the lowest among all VODI cities. Although Seattle saw considerable new demand in the medium-sized, 10,000-50,000 square foot category, it has seen no new requirements at all for large spaces in the 50,000+ square foot category since June. While the Seattle market occasionally sees a month without new demand in the 50,000+ square foot category, the 3-month absence of such demand from July to September is the only such gap since the early pandemic lockdown period.
SEE MORE LOCAL TRENDS
This refers to the average of the VODI cities’ month-over-month changes using absolute values, so that negative and positive fluctuations don’t cancel each other out.
1
SAN FRANCISCO
NEW YORK CITY
NEW YORK CITY
SAN FRANCISCO
LOS ANGELES
32.8%
increase from a year ago
In March, the Los Angeles VODI hit 85. The last time it was this high was during the Post-Vaccine Wave of new demand for office space in Summer 2021 (92 in August 2021). After that wave, Los Angeles saw a gradual decline in its VODI performance, reaching its low of 45 in February 2023. Since then, Los Angeles has seen the strongest upward spike among the VODI markets, including a 32.8 percent increase from a year ago (if we include the sharp jump from February to March 2023, Los Angeles’ resurgence comes in at 88.9 percent over 13 months). Using fitted trend lines for the period between October 2021 and November 2022 and the period since then, as we did nationally, makes Los Angeles’ upward spike crystal clear. Recent Los Angeles VODI readings are in the 80s, putting that market in the vicinity of its (volatile) pre-pandemic performance in 2018 and 2019. In other words, even if it’s not quite back to the pre-pandemic normal, it’s not terribly far off.
NEW YORK CITY
95.5%
increase from August 2022 to March 2024
While New York City’s VODI has not risen as quickly as Los Angeles’ over the last year, it has shown a similar scale of resurgence. After the Post-Vaccine Wave, New York City’s VODI hit its low point in August 2022, when it reached just 44. In March, it reached 86, a 95.5 percent increase over that 19-month span. Once again, using fitted trend lines helps visualize that recovery. And what we said regarding Los Angeles applies almost as neatly to New York City as well: Even if it’s not quite back to the pre-pandemic normal, it’s not terribly far off.
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LOCAL
At the other end of the spectrum, new demand for office space in Washington, D.C., was down 32.3 percent year-over-year, though it held steady on a quarterly basis.
Read more local VODI trends
WASHINGTON DC
32.3%
Decrease year-over-year
In contrast to Los Angeles and New York City, Washington, D.C., has seen new demand for office space decline. While the VODI for Washington, D.C., at 44, is ostensibly a bit higher than its most recent low point of 36 in June 2023, it is visually clear that it has been declining for approximately the last two years (it is less clear exactly when in 2022 that decline began, or whether it extends right back to the Post-Vaccine Wave of new office demand in Summer 2021). The fitted line exercise helps illustrate the decline since late 2022. Why has the VODI for Washington, D.C. fared more poorly than those of the other VODI cities? We don’t know for sure, but a likely culprit is the election cycle, which may be diminishing the appetite of government and government-adjacent employers to seek new office space as the next presidential election looms closer. In addition, tech sector demand for office space has notably declined in Washington, D.C. in recent quarters, falling from 18 percent of demand by square footage immediately before the pandemic to just over 2 percent on average over the last four quarters.
Moving beyond Washington, D.C.:
• • •
Seattle has also seen its VODI trend downwards in recent years, since the Post-Vaccine Wave of new office demand. However, it has strengthened in recent months, rising 38.2 percent on a quarterly basis and more than doubling from its low point of 20 in August 2023. Having said that, we want to see this trend continue for several more months before labeling it as a resurgence, as we did in Los Angeles and New York City. Chicago’s VODI has also been declining since the Post-Vaccine Wave and has remained relatively flat since mid-2022. It is not yet clear in which direction it will head. Finally, San Francisco and Boston both experienced minimal versions of the Post-Vaccine Wave, and despite some volatility, they have essentially remained flat at levels near or below 50 since then.
Seattle has also seen its VODI trend downwards in recent years, since the Post-Vaccine Wave of new office demand. However, it has strengthened in recent months, rising 38.2 percent on a quarterly basis and more than doubling from its low point of 20 in August 2023. Having said that, we want to see this trend continue for several more months before labeling it as a resurgence, as we did in Los Angeles and New York City. Chicago’s VODI has also been declining since the Post-Vaccine Wave and has remained relatively flat since mid-2022. It is not yet clear in which direction it will head. Finally, San Francisco and Boston both experienced minimal versions of the Post-Vaccine Wave, and despite some volatility, they have essentially remained flat at levels near or below 50 since then.
In March, the Los Angeles VODI hit 85. The last time it was this high was during the Post-Vaccine Wave of new demand for office space in Summer 2021 (92 in August 2021). After that wave, Los Angeles saw a gradual decline in its VODI performance, reaching its low of 45 in February 2023.
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Get a pulse on what’s happening in the market today.
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Get a pulse on what’s happening in the market today.