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VTS Office

Demand Index

(VODI)

October 2024

The national VODI receded by 8.1 percent from a quarter ago, in line with seasonal norms. However, it increased by 11.8 percent from a year earlier and that overall growth trend – which we have dubbed the thawing of the office market – is likely to continue.

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All VODI markets but one experienced positive growth compared to a year ago:

San Francisco, Boston, Chicago, and Seattle are finally beginning to thaw. 

New demand for office space remains the highest in
Los Angeles and New York City, though after gaining significant momentum over the last two years, both cities have seen their VODI recede recently. 

The office market in
Washington, D.C., the only city whose VODI declined year-over-year, may be paralyzed in anticipation of the presidential election.










NATIONAL

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The national VODI receded by 8.1 percent from a quarter ago, in-line with seasonal norms. However, it increased by 11.8 percent from a year earlier, and that overall growth trend – which we have dubbed the thawing of the office market – is likely to continue.

Explore nationwide trends

In September, the national VODI was 57. That level reflects a modest decline from one quarter ago. Quarter-over-quarter, the VODI declined by 8.1 percent from a level of 62 in June. The VODI tends to be a fairly volatile series, and we consider movements of less than ten percentage points to be modest.

The decline is in line with normal seasonal trends. During 2018, 2019, 2022, and 2023 (glossing over abnormal pandemic years), the VODI declined by 13.8 percent on average from June to September.

However, compared to a year ago, the national VODI rose by 11.8 percent from a level of 51 in September 2023. We believe that new demand for office space is likely to continue its gradual growth trend for several reasons. 

First, the backdrop for this quarter’s VODI is a job market that is gradually cooling but remains healthy, a Goldilocks state that can support new office demand by shifting bargaining power from employees to employers. The latter shows a greater preference for employees to work in-person at the office, corresponding to a stronger demand for office space.

More on the labor market backdrop:
 

BLS job growth numbers from the past three months paint an overall picture in which job creation rebounded sharply after the pandemic and has gradually slowed to a healthy long-term pace.

Unemployment surpassed four percent in May and has remained slightly above it since. While that remains a historically low unemployment rate, it is higher than the rates that prevailed throughout 2022 and 2023.

The Federal Reserve’s recent rate reduction – the first since March 2020 – is geared at maintaining a healthy labor market and stemming the current cooling. It therefore seems likely that it will prolong the current Goldilocks conditions of a healthy but not overheated labor market that is conducive to office demand.

Secondly, work-from-home rates in recent months have been the lowest since the onset of the pandemic. Across all sectors of the economy (including non-office-based work), less than one-third of work days are now spent working from home. While work-from-home rates may still recede a step further, they do not seem poised to increase.

Even the tech sector, which is the most reluctant to return to the office, is showing signs of shifting that attitude (as we show next). 

Finally, as time passes, employers sitting on the sidelines of the office market will increasingly need to make decisions. Some will be prompted by expiring leases. Others, paralyzed into inaction by uncertainty around remote work, will find that even without clarity, temporary patterns settle and become the new norm.

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NATIONAL

The tech sector, which has been the most resistant to returning to the office, seems to be shifting towards a more favorable view of on-site work.

View impact on VODI

As VODI reports have noted time and again, office-using industries differ from one another in terms of their willingness to accommodate remote and hybrid work. The FIRE sector, for example, presents as more traditional, putting greater emphasis on working from the office, whereas the TAMI sector – and especially the tech sector – has leaned in favor of remote work. 

But that may be changing. As recently as the second half of 2023, tech-heavy cities experienced weaker VODI performance, but that pattern has flipped in recent months. 

On the left, the following chart plots the change in city-specific VODIs over the last six months of 2023 against a measure of how tech-centric their office space has been. It shows that tech-heavy cities had weaker VODI performance than others in the second half of 2023.

But on the right is a chart for the six months ending in September 2024 shows that in the last six months, the VODI performance of tech-heavy cities was significantly stronger.

This evidence is circumstantial, in the sense that it does not necessarily tie the city-specific VODIs’ performance to the tech sector’s attitudes towards remote work. However, it is suggestive, and it lines up with anecdotal evidence of at least some tech sector firms shifting their stance in ways that fuel demand for office space. Amazon, for example, recently announced that it will require corporate staff to work in the office on a daily basis starting next year, OpenAI has secured large new office spaces in both San Francisco and New York City, and NVIDIA is looking to quintuple their space in Austin, demonstrating a commitment to office space.

These companies are leaders, and others may follow. Tech will continue to be an industry to watch closely in 2025 and beyond to see if these trends materialize. The pace of change is likely to be slow, as it is closely tied to gradual staff turnover.

In addition, a shift in the tech sector’s stance may have begun affecting some results we’ve grown accustomed to seeing in the last couple of years. We’ve noted in the past the persistent gap between the average VODI of the more- and less-remote-friendly cities (San Francisco, Seattle, Boston, and Washington, D.C. in the former; New York City, Los Angeles, and Chicago in the latter). The group of more-remote-friendly cities has consistently had a lower average VODI than the other group, and we have attributed that to a greater prevalence of sectors like tech that have tended to embrace remote work. After expanding for more than three years, that gap appears to be shrinking since early 2024.


 

Similarly, the West Coast markets’ average VODI, which held roughly equal to the East Coast’s throughout 2021, 2022, and 2023, has begun to open a gap since early 2024. While Los Angeles’ VODI surge this year has helped drive that new wedge, so has the tech sector’s apparent re-engagement with the office.

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All VODI markets but one experienced positive growth compared to a year ago: 




San Francisco, Boston, Chicago, and Seattle are finally beginning to thaw.

New demand for office space remains the highest in Los Angeles and New York City, though after gaining significant momentum over the last two years, both cities have seen their VODI recede recently.

The office market in Washington, D.C., the only city whose VODI declined year-over-year, may be paralyzed in anticipation of the presidential election.

Read VODI impacts on local markets

San Francisco, Boston, Chicago, and Seattle are finally beginning to thaw. In Chicago and Seattle, the upward curvature of the VODI’s path is clearly visible. 

The VODI’s volatility makes it difficult to discern a change in Boston and San Francisco. To get a better sense, the charts below show each city’s VODI and their changes compared to 12 months earlier, as they emerge each month. To help view the progression of change, we fitted a trend line to the year-over-year changes for the period since late 2022 – when the Post-Vaccine Wave of new demand for office space subsided.

Here is the chart for Boston. The trend line has clearly crossed from negative growth territory to positive, suggesting that Boston’s VODI is thawing.
 

BOSTON

And here is the chart for San Francisco, whose trend line is also inching into positive territory.

SAN FRANCISCO

In the case of Chicago, and especially Seattle, this type of chart makes the shift even more evident.

CHICAGO

SEATTLE

The Los Angeles and New York City VODIs grew only modestly, less than 10 percent from a year ago. New York City’s VODI increased almost 100 percent from 44 in August 2022 to 86 in March 2024. It has since declined to 61, though it remains higher than all other VODI markets except Los Angeles. 


New York City and its massive densely populated area is the exception in America’s urban landscape. As such, it led the charge in transitioning back from the pandemic into renewed in-person office attendance. It continues to lead the way as its thawed office market takes a breather.

Like New York City, Los Angeles’ VODI increased sharply, from 45 in February 2023 to 101 in April 2024. Although it has declined to 80 since then, new demand for office space in Los Angeles continues to lead the pack with the highest level among VODI markets.


 

Finally, Washington, D.C. is the only city whose VODI declined year-over-year, falling 20.5 percent from 44 in September 2023 to 35 in September of this year. 


While not all office demand in Washington, D.C. is driven by the federal government, it is certainly the prime mover. Given the proximity of the upcoming presidential election in November, it is likely that decisions around office space are being held up by prospective tenants waiting to see what the future holds. Put differently, the city’s office market may be paralyzed in anticipation of the presidential election.


With one exception, new demand for office space increased year-over-year in all VODI markets:

Seattle stands out as having the highest year-over-year growth, in excess of 100 percent. That sharp growth reflects an especially low baseline, as the Seattle VODI dipped sharply in August and September of 2023. If we sidestep that dip and consider the Seattle VODI’s growth starting in July 2023, before the dip, it was still an impressive 45.2 percent.

Boston, San Francisco, and Chicago also exhibited substantial VODI growth from last year, in excess of 10 percent each.

The Los Angeles and New York City VODIs grew only modestly, less than 10 percent from a year ago.

Washington, D.C., stands out as the only tracked market whose VODI declined, falling more than 20 percent year-over-year.

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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