Demand for Office Space Grows Amid Subsiding Work-from-Home Rates

Nationally, demand for office space recorded its ninth straight month of positive year-over-year growth, just as work-from-home rates hit their lowest levels since the onset of the pandemic. Up 18.2 percent in Q1 and 12.1 percent from February to March, the national VODI now sits at 65 percent of its average 2018-2019 level, according to the quarterly VTS Office Demand Index (VODI). The VODI tracks unique new tenant tour requirements of office properties in core U.S. markets, and is the earliest available indicator of upcoming office leasing activity as well as the only commercial real estate index to explicitly track new tenant demand.

Supporting the need for office space is declining work-from-home rates across major office markets. After the initial push to return to the office in 2022, the share of days worked from home actually began to rise in 2023, peaking in October 2023 before plummeting 31.4 percent from November 2023 to March 2024¹.

"We are hearing on the ground and on the streets that working from the office is increasingly becoming the norm again for many industries and metro areas. However, there are holdouts and they are putting their heels in the ground," said Nick Romito, CEO of VTS. "We see this most prevalently in Seattle and San Francisco, where the job growth curve is strong, but the number of days working from an office is not increasing in lockstep. Given this pattern's persistence, there is likely a significant culture shift at play, and further improvement will likely be more drawn out."

The gap between the more remote-friendly (e.g., Seattle, San Francisco, Boston) and less remote-friendly (e.g., New York City, Los Angeles, Washington, D.C.) cities existed prior to the COVID-19 pandemic but has progressively widened. From October 2020 to September 2023, the average gap between the two groups was 28.3 percent. In the six months from October 2023 to March 2024, the average gap was 37.1 percent.

Los Angeles and New York City within the realm of normal

Two of the less-remote-friendly cities, Los Angeles and New York City, recorded near-normal rates of demand for office space in March compared to the years leading up prior to the pandemic. Los Angeles has recently experienced the highest recent upward thrust of all markets, recording a VODI of 85 in March. Demand for office space in Los Angeles is now up 88.9 percent over the past 13 months. While a VODI of 100 is considered the par for pre-pandemic "normal," inherent volatility means that a VODI of less than 100 can be common even in normal times.

While New York City's VODI has not risen with the same gusto as Los Angeles' recently, it has still shown a similar scale of resurgence. Once at a low of 44 in August 2022, demand for office space in New York City is now at a VODI of 86, an increase of 95.5 percent over the 19-month period.

"As I look at the recovery in both Los Angeles and New York City, I can't help but think of where they were and how far they've come. Quiet streets have given way to the regular bump-and-grind, eateries are bustling, and hailing a cab in New York City has once again become a competition of the survival of the fittest," said Ryan Masiello, Chief Strategy Officer of VTS. "We are starting to see the beginnings of a similar revival in San Francisco, but it's slow and I expect they will take a different track to normalcy. Instead of the same major tech employers leading the way in the return to the office, we will see employers in more traditional lines of work take advantage of the opportunity."

Demand for office space is still subdued in Chicago, Boston, San Francisco, and Seattle for different reasons. In Washington, D.C., for example, demand is cyclical with the presidential election. Employers there are not quick to hunt for office space given the uncertainty of the election, and therefore, seeing demand fall in an election year should be expected.

In Seattle, demand for office space has grown in recent months, up 38.2 percent in Q1 alone. However, given its post-COVID struggles, it is too early to say if this is the beginning of a trend. Both Chicago and Boston have appeared to bottom out and are experiencing stability.

Q1 2024 VTS Office Demand Index (VODI)

About VTS

VTS is the industry's only technology platform that unifies owners, operators, brokers, and their customers across the commercial and residential real estate ecosystems. In 2013, VTS revolutionized the commercial real estate industry's leasing operations with what is now VTS Lease. Today, the VTS Platform is the largest first-party insights and collaboration engine in the industry, transforming how strategic decisions are made and executed by real estate professionals across the globe.

With the VTS Platform, consisting of VTS Lease, VTS Market, VTS Activate, and VTS Data, every stakeholder in real estate is given real-time market information and workflow tools to do their job with unparalleled speed and intelligence. VTS is the global leader, with more than 60% of Class A office space in the U.S., and 13 billion square feet of office, residential, retail, and industrial space is managed through our platform worldwide. VTS is utilized by over 45,000 professionals and over 1.2 million total users, including industry-leading customers such as Blackstone, Brookfield Properties, LaSalle Investment Management, Hines, BXP, Oxford Properties, JLL, and CBRE. To learn more about VTS, and to see our open roles, visit www.vts.com.

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¹ The VTS WFH Research survey data correspond to the top 10 largest U.S. cities, and are six-month trailing averages.