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January 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.
The TAMI sector’s share in the mix of new office demand compared to the pre-pandemic has fallen sharply, while other industries, including professional services, legal, government, healthcare and others have filled the void. The FIRE sector’s share changed more modestly.
16.6%
As recession fears fade and work-from-home patterns stabilize, prospective tenants are slowly gaining confidence to tiptoe back into the office market.
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At 55, the national VODI in December was up 19.6 percent over the year. December was the sixth straight month of positive year-over-year VODI growth, suggesting that new demand for office space may be thawing after an extended period of stagnation.
55
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Most VODI cities mirrored the national shift in the mix of new office demand away from the TAMI sector and towards industries outside of the TAMI and FIRE sectors.
The apparent thaw in new demand for office space was most palpable in New York City and Los Angeles, where the VODI increased 38.9 and
46.8 percent, respectively, compared to a year ago.
38.9%
46.8%
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At 55, the national VODI in December was up 19.6 percent over the year. December was the sixth straight month of positive year-over-year VODI growth, suggesting that new demand for office space may be thawing after an extended period of stagnation.
Explore nationwide trends
In December 2023, the national VODI was at 55, indicating that new demand for office space was flowing in at 55 percent of its average pace in 2018 and 2019. This level marks a 7.8 percent increase quarter-over-quarter, and is 19.6 percent higher than the VODI was a year earlier.
For more than two years now, the VODI has remained relatively stable, fluctuating in a narrow band between about half and two-thirds of the average 2018-2019 level. The VODI has yet to escape that band, but there are signs that new demand for office space is finally thawing.
The following chart shows the national VODI as well as its growth in VODI points over a rolling 12-month window. The VODI itself appears to be relatively flat from October 2021 to December 2023, a period we’ve dubbed The Stagnation or The New Normal. Because the VODI tends to fluctuate a lot, it is hard to confidently say there is slight and approximate upward curvature in the VODI itself during this period. However, the change in the VODI’s growth over a rolling 12-month window is easier to see.
From October 2022 when the 12-month window is first fully within The Stagnation period and until June 2023, the growth is consistently negative. That indicates that despite the VODI’s fluctuations, each month the VODI was lower than its value 12 months earlier. In the six months since then–the last six months–it has been consistently positive, i.e. greater than it was 12 months earlier.
¹ The mean quarterly absolute percent change during 2018-2019 was 20.13 percent, and from Oct 2021 to Sep 2023 it was 15.57 percent. In monthly terms, the mean absolute percent change during 2018-2019 was 9.54 percent, and from Oct 2021 to Sep 2023 it was 8.76 percent.
Another way of looking at it is by fitting trend lines to the VODI in different time periods. The VODI was trending slowly downward on average from October 2021 for about a year to November 2022 and has since been trending slowly upwards on average.
All in all, the VODI’s shift from negative to positive 12-month growth is small and has yet to draw new office demand out of the narrow band that has characterized The Stagnation, yet it suggests that new demand for office space may finally be thawing.
If the growth continues to gain momentum, 2023 will have been the year of inflection in which new demand for office space bottomed out.
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New Demand for Office Space
Over the Pandemic: An Illustration
Could we be at
inflection point?
Pre-Pandemic
The Crash
The Trough
Read more
Read more
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The Reset
The Stagnation (The New Normal)
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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
As recession fears fade and work-from-home patterns stabilize, prospective tenants are slowly gaining confidence to tiptoe back into the office market.
Economic and social impacts on VODI
As 2023 came to a close, recession fears were fading. There was a growing perception that a successful economic “soft landing” had been achieved, meaning that the Federal Reserve’s raising of interest rates had succeeded in reducing inflation with only limited harm to the labor market.
As of now, that still appears to be the case. Inflation is down to about 3 percent, unemployment has increased only very modestly and remains low by historical standards, and job growth remains strong.
In addition, the downward trend in work-from-home and its mirror image, the return-to-the-office, appears to have reached at least a temporary conclusion. According to WFH Research, the share of workdays worked remotely across all industries (including non-office-based ones) in the 10 largest US metros bottomed out at 32.7 percent in November 2022, and has since been rising. As of December 2023 it stood at 34.4 percent.
The perception of an economic soft landing coupled with the apparent stabilization of work-from-home rates may finally provide some employers with enough certainty to move forward and begin searching for new office space. That registers in VTS data as an increase in new demand for office space.
While labor market resilience supports employer confidence, its modest cooling as a result of rising interest rates supports employers’ bargaining power to bring employees back to the office. Both developments help employers gain confidence in wading back into the office market.
The signs of thawing are still nascent and far from conclusive, but it seems that prospective tenants’ hesitancy is slowly giving way to confidence.
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NATIONAL
The TAMI sector’s share in the mix of new office demand compared to the pre-pandemic has fallen sharply, while other industries, including professional services, legal, government, healthcare and others have filled the void. The FIRE sector’s share changed more modestly.
Read more national VODI trends
While new demand for office space is considerably lower in the post-pandemic age of remote and hybrid work than it was in the pre-pandemic, that is not the only change; the implications across industries have been remarkably different.
As we’ve often noted in the past, work in the TAMI sector tends to be more remote-friendly. In contrast, the FIRE sector has generally been more traditional in its attitude and more eager to return to the office. The “third sector” of remaining industries includes professional services, legal, government, and healthcare, as well as energy and nonprofits, and seems to have been even more traditional than the FIRE sector in its approach to work-from-home.
These general sectoral tendencies show up in the changing industry mix of new office demand. We compared data on the share of new office demand (in terms of square footage) emanating from each of the industries in January 2020, immediately before the pandemic, with data on those shares in Oct.-Dec. 2023.
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Across the VODI cities, the share of new office demand emanating from the TAMI sector decreased by 11.3 percentage points, which amounts to a 35.1 percent decline.
The FIRE sector’s share of new office demand fell by 3.1 percentage points, a 10.6 percent decline, which is a small change compared to the other sectors’ changes.¹
In contrast, the “third sector’s” share increased by 14.4 percentage points, or 37.3 percent, filling in the void left mostly by the TAMI sector.
¹ New demand for office space was substantially lower in Oct-Dec 2023 than it was in January 2020. Thus, that the share of new office demand emanating from the FIRE sector changed only slightly over this period means that it shrank roughly in proportion to total new demand.
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The apparent thaw in new demand for office space was most palpable in New York City and Los Angeles, where the VODI increased 38.9 and 46.8 percent, respectively, compared to a year ago.
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.
Only four of the seven cities tracked by the VODI experienced year-over-year increases, however the two largest markets (by square footage), New York City and Los Angeles, both exhibited substantial gains over the year. Different from Boston, which experienced a large percentage gain because it started from a low base a year ago, New York City and Los Angeles both had substantial gains in percentage point terms as well.
Owing to their size, New York City and Los Angeles exert an outsized influence over the national VODI. In both markets, though more so in Los Angeles, the recent VODI growth stems largely from an increase in new office demand for large spaces, spanning 50,000 square feet or more. This reflects bigger tenants coming back to the market and making bold decisions. To some extent, it may also reflect some tenants up-sizing their requirements back to their previous sizes. San Francisco also experienced a spike in new requirements for large spaces in early 2023.
The only city to experience a substantial decline in the VODI was Washington, D.C., which fell 22.8 percent year-over-year. That decline could be related to the fast approaching election year, which tends to cool demand from government and related tenants.
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.
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SAN FRANCISCO
NEW YORK CITY
NEW YORK CITY
SAN FRANCISCO
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LOCAL
Most VODI cities mirrored the national shift in the mix of new office demand away from the TAMI sector and towards industries outside of the TAMI and FIRE sectors.
Read more local VODI trends
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The shift in the industry mix of new office demand at the national level is mirrored by most VODI cities as well. That reinforces the notion that attitudes towards work-from-home have systematically diverged across industries.
All VODI cities experienced substantial increases in the share of new demand for office space emanating from the “third sector.” Those increases ranged from 23.5 percent in New York City to 96 percent–almost doubling–in Seattle.
In five of the seven VODI cities–all but San Francisco and Washington D.C.– the share of new demand coming from the TAMI sector fell sharply, with declines ranging from 20.3 percent in Los Angeles to 58.4 percent in Chicago. The TAMI sector’s share of new demand in Washington, D.C., fell only slightly, and San Francisco’s industry mix of new demand has been too volatile for clear interpretation.
The outcomes were mixed with respect to the change in the FIRE sector’s share. New York City, for example, saw a moderate increase in that sector’s share of new office demand as of late 2023, but one that has not been consistent over time. On the other hand, new demand from the FIRE sector in San Francisco and Washington, D.C., plummeted by 54.3 and 77.9 percent, respectively.
VTS Office Demand Index by Market
National
Chicago
Seattle
Washington, D.C.
2018
Sep '23
2018
Sep '23
2018
Sep '23
2018
Sep '23
New York City
Los Angeles
San Francisco
Boston
2018
Sep '23
2018
Sep '23
2018
Sep '23
2018
Sep '23
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