Demand for Office Space Sinks Below Half of its Pre-Pandemic Pace As Summer Comes to a Close

NEW YORK–(BUSINESS WIRE)–As summer came to a close, new demand for office space fell for the third consecutive month in August, sinking below half of its average pre-pandemic pace, according to the latest VTS Office Demand Index (VODI) analysis. The national VODI fell by 6 VODI points, or 11.5 percent, from 52 in July to 46 in August, its lowest level since February 2021. A VODI of 50 or below indicates the flow of new tenants seeking office space is running at less than half of its pre-pandemic pace in 2018 and 2019. The VODI tracks unique new tenant tour requirements, both in-person and virtual, 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.

Year-over-year, the national VODI declined 47.1 percent. As noted in recent VODI reports, the year-over-year decline is not concerning in and of itself, because it reflects last year’s so-called Post-Vaccine Wave of new office demand. In that wave, demand for office space that was pent-up during earlier stages of the COVID-19 pandemic entered the market in a short amount of time, resulting in a temporary burst of new demand in late spring and summer 2021. The large year-over-year declines will temper as the Post-Vaccine Wave fully recedes behind the 12-month mark in October.

“A summer slowdown is typical for office demand, but what remains to be seen is if this downward trend will continue or if we’re simply settling into a new ‘post-pandemic normal’ for office demand levels,” said Nick Romito, CEO of VTS. “Economic concerns, particularly around inflation and rising interest rates, have created a cloud of uncertainty that’s hanging over the office leasing market. Until the economic outlook becomes more clear, some employers may continue to delay or approach the search for office space with caution.”

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