Keeping Busy – July 22, 2024
Brick-and-mortar retail was consigned to the dustbin at the height of the pandemic; in the long term, we were told, consumers would no longer do their shopping at physical stores. The sector’s obituary proved to be premature. Much the same was said about lodging: people would simply stop traveling unless absolutely necessary. Eh, that hasn’t happened, either.
Well, how about office? Surely the conventional wisdom that CBDs were doomed to obsolescence has been borne out by macro trends of the past four years? Office-using employees have generally opted to telecommute since the pandemic forced them to stay home, right?
Tell that to Blackstone, which just expanded its Manhattan headquarters space by a quarter million square feet. Tell it to Vertex Pharmaceuticals, which renewed a 1.1-million-square-foot Boston lease earlier this month. Tell it to the owner/developers that are repositioning or constructing office properties across the U.S.
Admittedly, the success stories in office are offset by tales of tenants downsizing space, securitized debt moving to special servicing and forecasts of negative absorption through the end of next year, with the bright spots in leasing generally confined to a handful of prime assets. However, accompanying this parade of downbeat news has been one that is less noticed: increasing activity in and around office properties.
The latest evidence of this pickup in office traffic is a new index announced by Avison Young. Working with Placer.ai, the services firm has launched the Office Busyness Index. The index tracks 41 office markets from 2019 to the present, analyzing and reporting trends based on mobility data to help determine the busyness of offices across the U.S.
“Our Market Intelligence experts geofenced office buildings that met our strict criteria for size, use, build date, location and occupancy,” said Jennifer Rosenak, U.S. director of market intelligence at Avison Young. “We then partnered with Placer.ai, the leader in anonymized mobility data, and applied further controls around factors such as dwell time to ensure the most accurate picture of office busyness.”
On a national level, the index tells us that office buildings as of June 2024 are 61.9% as busy as they were five years earlier—before the pandemic ostensibly changed the paradigm around office use. On a year-over-year basis, 28 of the 41 markets are busier than they were in June 2023.
Naturally, there are standout markets among the 41 tracked by the Busyness Index. At 76.6% of 2019 levels, Manhattan office activity is nearly 150 percentage points above the national average during the same period. It’s also up 7.3% year-over-year. Other markets that have seen notable Y-O-Y increases include Washington, DC, Silicon Valley and the San Francisco Peninsula (although not the city itself), and Sacramento.
The office-using industries that are most likely to be back in the office vary by market. In Houston, for example, it’s tenants in the transportation business. In Nashville, consumer products businesses lead in office attendance. In San Francisco, law firms lead.
Index data dispel a couple of myths around post-pandemic office visitations. There’s a perception that trophy towers are the real magnets for attendance, but in fact on a market-by-market basis the disparity in visitation rates among office classes often isn’t as wide as one might expect.
Similarly, we’ve been told that Fridays mean empty offices, yet in reality visitation rates are more uniform across the work week than you might think. Yes, there’s a drop-off compared to Tuesday (the peak day for attendance in most markets), but on a national basis it’s still better than 40% of pre-pandemic levels and has increased to more than 50% in some cities.
As Harry Klaff, Avison Young’s U.S. president, put it, “Our clients are interested in the utilization of buildings, how busy they are and in determining what markets are performing well – and The Office Busyness Index has those answers.”