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Office-Using Tenants Look Past the Pandemic

If it seems as though you’ve been reading more stories about office leasing deals on Connect recently, it’s not a figment of anyone’s imagination. VTS reports a 21% month-over-month increase in demand for office space in core markets for January, based on tenant tours both in-person and virtual.

The VTS Office Demand Index (VODI) for January does show that recovery in demand has a way to go, though. The VODI for January was 40 nationally, compared to 99 a year ago—a lingering result of the pandemic forcing office-using employers to switch to remote working.

However, VTS notes that local COVID-19 caseloads, the primary driver of relative demand trends in local markets for much of last year, no longer carry the same influence. While a market hit harder by COVID-19 often saw a more dramatic fall to bottom in the early spring of 2020, markets with some of the highest increases in COVID-19 cases over the past three months have seen demand pick up the most.

Instead, demand in local markets is now more closely tied to local near- and long-term dynamics. These include office-using job growth, expected vaccine distribution, the anticipated return of urban amenities and the potential for long lasting public and in-office safety measures.

“It was no surprise to see demand rise overall in January, as that happens every year, but looking at market-by-market trends shows us that employers are changing their focus,” said VTS CEO Nick Romito. “Given the ups and downs of COVID-19 cases are having less impact on office demand, many employers are now making long-term decisions rooted in the mental and physical health of their workforce, office culture goals and the local economic and leasing climate. All that said, we are still quite far from a full recovery.”

Despite experiencing some of the greatest spikes in COVID-19 cases in January, the West Coast markets of Seattle, San Francisco, and Los Angeles experienced the greatest growth in tenant demand, although VTS notes there are markedly different reasons behind the growth in each market.

Among major markets, San Francisco has experienced the strongest growth in demand over the past three months, while Los Angeles is farthest along the road to full recovery. Chicago and Boston had the smallest monthly VODI growth: four points and one point respectively.

“There are many things prospective tenants are evaluating when considering when and where to lease office space in 2021– does a building provide the amenities to keep their employees safe and well-connected, are there tax or financial incentives to stay or leave and even how much space they’ll need if they move to a more permanent remote or partial remote workforce,” said VTS chief strategy officer Ryan Masiello. “In San Francisco, for example, some tenants are seizing the opportunity to capitalize on softening rents and increasing concessions as office-using employment is rising.”

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About Paul Bubny

Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism. In this capacity, he oversees daily operations while also reporting on both local/regional markets and national trends, covering individual transactions across all property types, as well as delving into broader subject matter. He produces 15-20 daily news stories per day and works with the Connect team and clients to develop longer-form content, ranging from Q&As to thought-leadership pieces. Prior to joining Connect, Paul was Managing Editor for both Real Estate Forum and GlobeSt.com at American Lawyer Media, where he oversaw operations at both publications while also producing daily news and feature-length articles. His tenure in B2B publishing stretches back into the print era, and he has served as Editor in Chief on four national trade publications. Since 1999, Paul has volunteered as the newsletter editor of passenger rail advocacy groups (one national, one local).

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