Office Demand Rises MoM Across Key Markets
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APRIL 2023
After a rough April, May rebounded to March levels with 3.8M sf of new tenant demand, up 40% on a count basis and 147% on a sf basis MoM. Much of this bounce back can be attributed to larger tenants, with some mega users over 100k+ sf entering the market and driving up the total sf.
Explore the key drivers below
April Showers Bring May Flowers
A look at the latest trends impacting office demand
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REPORT | APRIL 2023
Copyright View the Space, Inc. 2023
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METHODOLOGY
In May, the Chicago office market rebounded from April with new activity resembling January activity that kicked off the year. 92 new unique tenants entered the market totaling 1.1M sf, a 73% increase MoM. The size of these new requirements also increased 36% compared to last month, with an average tenant size of 12.3K sf, also the highest since January.
January Déjà Vu
Over the last three months, Association/Nonprofit demand increased by 38% vs. the prior three months by count. The sector was up 192% YoY and 466% vs. the prior three months when measured by sf. The average tenant size is larger than any other industry group at 22.9K sf, 8.7K sf larger than the average Creative tenant, the 2nd largest industry group.
New Large Tenant Demand Coming from Atypical Industries
There was a 42% increase in lease proposals being exchanged over the last three months vs. the previous three-month period, and the 242 total proposals were the most recorded over the past four years. Current active proposals are commanding 9% higher NERs, 3% higher starting rents, and decreased concessions compared to the 22 deals executed so far in 2023.
Paper Trading at an All-Time High
Downtown makes up 28% of current active proposals (for NYC, Class A & Trophy,10k+ sf, with 60+ month term). This is the highest % of deals Downtown since the onset of the pandemic and up 87% vs. the % share of deals executed YTD '23. Despite having the lowest average starting rent of the three submarkets at $59/sf, Downtown still accounted for the highest % of newer quality buildings, with 80% of the active proposals in buildings built or reno 2014+.
Downtown Sees Some Light
Office Demand Jumps 40% in May
NEW YORK CITY
After a slow month in April, there was 1.8M sf of new tenant demand from FIRE in May. This is up 315% MoM and nearly 93% from the monthly average in 2021. Over the trailing three months, the finance sector in particular finally saw a positive increase YoY, with the total sf up 4%.
FIRE with a Comeback
Active Demand in May increased 11% MoM to 29.3M sf, the second highest level since the onset of the pandemic, and is 16% above the monthly average in 2021-2022 of 25.3M sf. There was only one month in 2023 so far that was below that level, putting us on track to end the year above the average.
Active Demand Over Time
Downtown makes up 28% of current active proposals (for NYC, Class A & Trophy,10k+ sf, with 60+ month term). This is the highest % of deals Downtown since the onset of the pandemic and up 87% vs. the % share of deals executed YTD '23. Despite having the lowest average starting rent of the three submarkets at $59/sf, Downtown still accounted for the highest % of newer quality buildings, with 80% of the active proposals in buildings built or reno 2014+.
Downtown Sees Some Light
New Office Demand Up 73% MoM
CHICAGO
Class A Unique Tenant Tours Up 51% MoM
BOSTON
For the second consecutive month, new requirement velocity has been muted. May recorded just 321k sf of new monthly requirements, a 3% decrease from April and -39% to the 2021-2022 monthly average. Despite back-to-back lackluster months, the total sf of new requirements YTD '23 trails '22 by just 4% due to the strong Q1.
Demand Remains Constrained
The Pro Services sector bounced back in May following a slow April, recording 89k sf of new monthly requirements, a 50% increase MoM, but still down 22% from the 2022 monthly average. Demand retracted in the FIRE and TAMI sectors, recording just 75k and 51k, down 17% and 43% MoM, respectively.
Pro Services Rebounds
In May, Class A assets recorded 56 unique tenant tours, a 51% increase MoM +40% vs. the 2022 and 2021 monthly average. Class B tours declined slightly MoM, down 5%, but still outpaced the 2022 and 2021 monthly averages.
Tours Return to Class A
Free Rent for active proposals in Class A assets with a size of 5k+ sf and 60+ mo. of the term currently average 7.4 months, 17% higher than deals executed thus far in 2023, and a staggering 86% higher than deals executed in 2020. This continues to hinder NER growth which has lagged starting rent growth since 2020.
Free Rent Rising
109% Increase in New Requirements by SF
WASHINGTON, DC
After a weak April, new requirements increased in May. 58 new requirements totaling 580k sf entered the market in May, a 109% MoM increase by sf. The monthly new requirements are 10% below this time last year and 47% below pre-Covid norms.
Modest Demand in May
Large tenant demand was limited in May, while midsize requirements buoyed the market, accounting for 248k sf (43%) of the 580k sf total. While not at early 2023 levels, smaller tenants have been more resilient, accounting for 175k sf in May.
Midsize Tenants Buoy the Market
Touring activity this month has fared better in the East End and Capitol Hill with a 26% and 29% MoM increase, respectively. Tours in the CBD have held flat, while tours in the Non-core submarkets decreased 31% YoY.
Capitol Hill & East End Tours Increase
The period between Mar-May this year has seen a high of 233 proposals trading in the market compared to the same time period in 2022, where there were 216 proposals, and in 2021, when there were 226. Class B proposals have decreased by 30% in the last six months, while Class A proposals have increased by 7%, totaling 631.
Proposals Reaching a New High
New Office Demand Up 65% MoM
San Francisco
There were 84 new requirements in May, up 65% from the previous month. This level of demand is also up vs. the annual averages of 2022 and 2021. However, a substantial portion (~2/3) of these requirements were in the smaller size range (<10k sf).
Requirement Rebound
During the past three months, unique tenant tours were up across size ranges and submarkets compared to the prior three months. The highest concentration of tenants was in the <10k sf size range in the Financial District, where there were 118 unique tenant tours. This was up 27% vs. the previous three-month period and +20% compared to the same period last year.
Activity Picks Up
Touring activity this month has fared better in the East End and Capitol Hill with a 26% and 29% MoM increase, respectively. Tours in the CBD have held flat, while tours in the Non-core submarkets decreased 31% YoY.
Rising Proposals do not Equal Rising Rents
YTD Demand From Large Tenants Up 23% YoY
LOS ANGELES
In lockstep with 2021 and 2022, a pop in May demand meant the VODI shook off the April downtrend. More than 1.2M sf of new requirements entered in May, with 42% coming from the large-tenant segment. YTD demand from the large tenant segment is up 23% YoY.
Seasonal Uptick in May
Requirement data from the last three months continues to show Creative at the top by volume, but demand is decelerating, down 33% YoY. The Tech sector is going against the headlines and is holding momentum, with triple-digit gains from the previous month when comparing requirement volume over the last three months relative to the prior three.
Creative Holding on, Tech Rising
Unique tenant tours (UTTs) in the South Bay increased significantly on a short- and long-term basis. There were 45 UTTs in May, nearly matching the 49 for the entire West LA-HMW cluster, the market's largest cluster. UTTs for the South Bay were up 36% MoM and up 50% and 94% relative to the monthly averages from 2022 and 2021, respectively.
The South Bay is Getting Looks
New Office Demand Jumps 75% MoM
SEATTLE
There were 35 new requirements in May, boosting demand by 75% MoM. Most demand is still from smaller tenants, with 71% of new requirements looking for less than 10k sf. Overall momentum remained positive, with the monthly level above the annual averages for 2022.
Return of Demand
Legal takes the lead with 17 new requirements over the past three months. This was an increase of 325% compared to the preceding three-month period and +55% vs. the same period last year. The previous leader, professional services, now hold the second position. Together, these two industries make up 44% of the new requirements that entered the market in the past three months.
Legal on Top
While TI and free rent concessions remain elevated, starting rents are holding steady. The average proposed starting rent for Class A spaces 5k+ sf for a 5-year term or longer stands at $50 psf, one dollar higher than the average of comparable deals executed YTD. A compositional shift towards quality is contributing to the resilience of base rents. Average concession packages show signs of normalization, as proposed TIs have decreased by $5 to $85 per square foot compared to earlier this year.
Quality Keeps Rents Stable
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Office Demand Rises MoM Across Key Markets
Explore the key drivers below
After a slow month in April, there was 1.8M sf of new tenant demand from FIRE in May. This is up 315% MoM and nearly 93% from the monthly average in 2021. Over the trailing three months, the finance sector in particular finally saw a positive increase YoY, with the total sf up 4%.
FIRE with a Comeback
Active Demand in May increased 11% MoM to 29.3M sf, the second highest level since the onset of the pandemic, and is 16% above the monthly average in 2021-2022 of 25.3M sf. There was only one month in 2023 so far that was below that level, putting us on track to end the year above the average.
Active Demand Over Time
Downtown makes up 28% of current active proposals (for NYC, Class A & Trophy,10k+ sf, with 60+ month term). This is the highest % of deals Downtown since the onset of the pandemic and up 87% vs. the % share of deals executed YTD '23. Despite having the lowest average starting rent of the three submarkets at $59/sf, Downtown still accounted for the highest % of newer quality buildings, with 80% of the active proposals in buildings built or reno 2014+.
Downtown Sees Some Light
New Office Demand Up 73% MoM
CHICAGO
In May, the Chicago office market rebounded from April with new activity resembling January activity that kicked off the year. 92 new unique tenants entered the market totaling 1.1M sf, a 73% increase MoM. The size of these new requirements also increased 36% compared to last month, with an average tenant size of 12.3K sf, also the highest since January.
January Déjà Vu
Over the last three months, Association/Nonprofit demand increased by 38% vs. the prior three months by count. The sector was up 192% YoY and 466% vs. the prior three months when measured by sf. The average tenant size is larger than any other industry group at 22.9K sf, 8.7K sf larger than the average Creative tenant, the 2nd largest industry group.
New Large Tenant Demand Coming from Atypical Industries
There was a 42% increase in lease proposals being exchanged over the last three months vs. the previous three-month period, and the 242 total proposals were the most recorded over the past four years. Current active proposals are commanding 9% higher NERs, 3% higher starting rents, and decreased concessions compared to the 22 deals executed so far in 2023.
Paper Trading at an All-Time High
Class A Unique Tenant Tours Up 51% MoM
BOSTON
For the second consecutive month, new requirement velocity has been muted. May recorded just 321k sf of new monthly requirements, a 3% decrease from April and -39% to the 2021-2022 monthly average. Despite back-to-back lackluster months, the total sf of new requirements YTD '23 trails '22 by just 4% due to the strong Q1.
Demand Remains Constrained
The Pro Services sector bounced back in May following a slow April, recording 89k sf of new monthly requirements, a 50% increase MoM, but still down 22% from the 2022 monthly average. Demand retracted in the FIRE and TAMI sectors, recording just 75k and 51k, down 17% and 43% MoM, respectively.
Pro Services Rebounds
In May, Class A assets recorded 56 unique tenant tours, a 51% increase MoM +40% vs. the 2022 and 2021 monthly average. Class B tours declined slightly MoM, down 5%, but still outpaced the 2022 and 2021 monthly averages.
Tours Return to Class A
Free Rent for active proposals in Class A assets with a size of 5k+ sf and 60+ mo. of the term currently average 7.4 months, 17% higher than deals executed thus far in 2023, and a staggering 86% higher than deals executed in 2020. This continues to hinder NER growth which has lagged starting rent growth since 2020.
Free Rent Rising
109% Increase in New Requirements by SF
WASHINGTON
After a weak April, new requirements increased in May. 58 new requirements totaling 580k sf entered the market in May, a 109% MoM increase by sf. The monthly new requirements are 10% below this time last year and 47% below pre-Covid norms.
Modest Demand in May
Large tenant demand was limited in May, while midsize requirements buoyed the market, accounting for 248k sf (43%) of the 580k sf total. While not at early 2023 levels, smaller tenants have been more resilient, accounting for 175k sf in May.
Midsize Tenants Buoy the Market
Touring activity this month has fared better in the East End and Capitol Hill with a 26% and 29% MoM increase, respectively. Tours in the CBD have held flat, while tours in the Non-core submarkets decreased 31% YoY.
Capitol Hill & East End Tours Increase
The period between Mar-May this year has seen a high of 233 proposals trading in the market compared to the same time period in 2022, where there were 216 proposals, and in 2021, when there were 226. Class B proposals have decreased by 30% in the last six months, while Class A proposals have increased by 7%, totaling 631.
Proposals Reaching a New High
New Office Demand Up 65% MoM
SAN FRANCISCO
There were 84 new requirements in May, up 65% from the previous month. This level of demand is also up vs. the annual averages of 2022 and 2021. However, a substantial portion (~2/3) of these requirements were in the smaller size range (<10k sf).
Requirement Rebound
During the past three months, unique tenant tours were up across size ranges and submarkets compared to the prior three months. The highest concentration of tenants was in the <10k sf size range in the Financial District, where there were 118 unique tenant tours. This was up 27% vs. the previous three-month period and +20% compared to the same period last year.
Activity Picks Up
Even with a 95% increase in proposal volume in the last three months, the estimated proposed average NER is down 5.2%. Demand is concentrated on the higher end of the market, resulting in steady starting rents, but the average TIs reached $138 per square foot, up 22% vs. the preceding three months.
Rising Proposals do not Equal Rising Rents
YTD Demand From Large Tenants Up 23% YoY
LOS ANGELES
In lockstep with 2021 and 2022, a pop in May demand meant the VODI shook off the April downtrend. More than 1.2M sf of new requirements entered in May, with 42% coming from the large-tenant segment. YTD demand from the large tenant segment is up 23% YoY.
Seasonal Uptick in May
Requirement data from the last three months continues to show Creative at the top by volume, but demand is decelerating, down 33% YoY. The Tech sector is going against the headlines and is holding momentum, with triple-digit gains from the previous month when comparing requirement volume over the last three months relative to the prior three.
Creative Holding on, Tech Rising
Unique tenant tours (UTTs) in the South Bay increased significantly on a short- and long-term basis. There were 45 UTTs in May, nearly matching the 49 for the entire West LA-HMW cluster, the market's largest cluster. UTTs for the South Bay were up 36% MoM and up 50% and 94% relative to the monthly averages from 2022 and 2021, respectively.
The South Bay is Getting Looks
New Office Demand Jumps 75% MoM
SEATTLE
There were 35 new requirements in May, boosting demand by 75% MoM. Most demand is still from smaller tenants, with 71% of new requirements looking for less than 10k sf. Overall momentum remained positive, with the monthly level above the annual averages for 2022.
Return of Demand
Legal takes the lead with 17 new requirements over the past three months. This was an increase of 325% compared to the preceding three-month period and +55% vs. the same period last year. The previous leader, professional services, now hold the second position. Together, these two industries make up 44% of the new requirements that entered the market in the past three months.
Legal on Top
While TI and free rent concessions remain elevated, starting rents are holding steady. The average proposed starting rent for Class A spaces 5k+ sf for a 5-year term or longer stands at $50 psf, one dollar higher than the average of comparable deals executed YTD. A compositional shift towards quality is contributing to the resilience of base rents. Average concession packages show signs of normalization, as proposed TIs have decreased by $5 to $85 per square foot compared to earlier this year.
Quality Keeps Rents Stable
Read Now
A look at the latest trends impacting office demand
REPORT | APRIL 2023
Copyright View the Space, Inc. 2023
BACK TO TOP
METHODOLOGY
VIEW FULLSCREEN
Office Demand Rises MoM Across Key Markets
Explore the key drivers below
VIEW FULLSCREEN
Read Now
SCROLL DOWN
A look at the latest trends impacting office demand
REPORT | APRIL 2023
Copyright View the Space, Inc. 2023
BACK TO TOP
METHODOLOGY
