National Office Demand Stabilizes in Q3 But Spikes in LA: Report
Demand for office space is booming in Los Angeles, despite remaining at just a fraction of what it was before the pandemic elsewhere in the United States, according to a quarterly office demand index from analytics firm VTS.
A particularly sharp rise in demand for office space in L.A. this September was fueled by tenants seeking spaces larger than 50,000 square feet, per the report. The level of demand for spaces of that size in the country’s second-largest city is now higher than at any time since June 2021. VTS’s demand index, known as VODI, measures demand via tenant searches.
Yet the strength of the L.A. market is an outlier in the report, which offers more mixed news for the other markets it tracks: Boston, Chicago, New York City, Seattle, San Francisco, Washington, D.C., and the overall national office landscape.
National levels of office demand appear to have more or less stabilized but remain stuck between half and two-thirds of pre-pandemic levels. National demand decreased 3.8 percent quarter-over-quarter, but actually increased 6.3 percent annually, per the report.
“What the office market has experienced over the past two years is likely what we will see for the immediate future. Although it is showing signs of life amid persistent headwinds, it remains to be seen if the office market will continue to rebound further from pandemic lows,” VTS CEO Nick Romito said in a statement. “Amidst a cooling job market, new demand for office space has remained fairly consistent over the last two years despite these headwinds, which is a positive indicator of resiliency.”
From a longer-term perspective, demand in New York City, Boston and San Francisco has remained the same over the past two years, despite oscillating monthly at different levels.
Yet the news for other markets is sobering. Seattle in particular has suffered in recent months. Demand there decreased 43.2 percent quarter-over-quarter, and 53.2 percent year-over-year, making it just one-fifth of normal levels. VTS says this is due to an “abnormal” three-month decline of tenants seeking spaces of 50,000 square feet or more. Demand for spaces 10,000 to 50,000 square feet was actually up in Seattle in the third quarter, however, which prevented an all-out crash.
“Seattle’s very low demand for office space is more reminiscent of the beginning of the pandemic than any other time, and it doesn’t appear to be changing soon,” VTS Chief Strategy Officer Ryan Masiello said.
Demand for office space in Chicago and D.C. has also gradually declined over the past two years, per the report.
That finding is backed up by the third-quarter office report by brokerage firm Savills, which noted that office leasing activity in D.C. weakened from 1.4 million square feet to 1.2 million quarter-over-quarter.
Nick Trombola can be reached at NTrombola@commercialobserver.com.