Manhattan Office Recovery No Indication of Nationwide Rebound: VTS

reprints


While the Manhattan leasing market may be slowly on the mend, with “flight-to-quality” on the lips of analysts, new demand for office space nationwide declined recently, according to VTS’s office demand index for December 2021.

Demand for new office space dropped 33 percent in December compared to its peak in August and was at 58 percent of its pre-pandemic pace, according to the report released Wednesday. It analyzed new tenant tour requirements — for companies that plan to have their employees working in-person and/or virtually — of top-shelf office properties in central business districts in major U.S. markets.

SEE ALSO: Stream to Manage Leasing at Four-Building Reston Office Complex

This is in stark contrast to the sharp 172 percent increase in demand, to 87 percent of its pre-pandemic peak, between January and August 2021. The August figures could be indicative of tenants riding out the pandemic before searching for new space.

Omicron has caused this retreat in the market, as companies indefinitely pushed back their long-awaited return to the office, but VTS said it may be a while yet before the metrics reflect the full extent of this setback.

“It’s hard to ignore the emergence of new variants’ effects on employers’ ability to plan for a return to the office, but given that December is typically an underperforming month, I would’ve expected a greater decline than what we experienced this month,” VTS CEO Nick Romito said in a statement. “However, despite a better than usual end of the year, looking ahead into 2022, I expect bruised sentiment to continue to materially impact demand for office space.”

As remote-friendly positions continue to dominate the job market, VTS said core markets — like New York and Washington, D.C. — have been most impacted, with demand falling as much as 51 percent since the peak of summer 2021. The only exception to this decline among major markets was in Seattle, which saw a small increase in the number of tours in December.

Cities with more jobs that allow employees to work from home, such as Washington, San Francisco and Boston, continue to lag behind at 47, 45 and 33 percent, respectively, of their 2018 and 2019 demand average, according to VTS.

Less remote-friendly cities such as New York City, Chicago and Los Angeles are behind their 2018 to 2019 averages by 64, 66 and 71 percent, respectively, the report shows.

While Manhattan’s office market is still bruised, it appears to have started to round the corner in its recovery. CBRE found in a report released in December that leasing volume by square footage in Midtown South was 109 percent above its five-year monthly average, for instance. Peter Turchin, a vice chairman at CBRE, previously told Commercial Observer the progress was no small feat and was too consistent to be a coincidence.

CBRE data indicate that the availability rate in Midtown South was down to 18.2 percent in October versus the 18.8 percent it notched in September, with lower prices driving the office race.

Mark Hallum can be reached at mhallum@commercialobserver.com.