Demand For Office Space Stalls After 6 Months Of Growth
Demand for office space nationwide ticked downward in July, possibly due to concern over the rapid spread of the delta variant of the coronavirus, according to a report by VTS, a provider of leasing and asset management software for commercial real estate landlords.
The company reports seasonality is also a possible headwind to the recovery in the demand for office space, since July 2021’s decrease is slightly less than the July month-over-month average seasonal decline in 2018 and 2019.
The downward movement comes after six consecutive months of growth in demand for office space. Nationally, the VTS Office Demand Index stood at 84 as of July, down 1.2% compared with June but still up 12% compared with three months earlier. At its trough in June 2020, the index stood at 16 compared with the pre-pandemic benchmark of 100.
The VTS platform captures and aggregates supply and demand data across all office asset classes. The company says that it sees 99% of all newly created tenant requirements within the markets it serves.
A few cities are still experiencing growth in demand for office space, VTS reports. Los Angeles is the only market with demand above the pre-pandemic average (116 on the company's index). Though still below 100, Boston and Seattle also experienced growth in demand for office space in July compared with June, according to the report.
Compared with June, LA experienced 13.7% growth in demand in July. Its growth in office demand has been driven by information services, which includes firms engaged in data processing, software publication and sound recording activities.
Demand for office space in New York is relatively robust as well, though still below pre-pandemic levels. VTS puts the city at 92 on its index, with demand down 4.2% in July compared with June.
Though July saw a downtick, there is some evidence that landlords are looking to hold the line on office rents, anticipating a full recovery as 2021 progresses. Annual asking rents were up 1.9% year-over-year as of the end of the second quarter, Transwestern reports.
"Landlords are likely firm on asking rents because office demand is expected to rebound in the second half of the year, and rent can offset generous concession packages," the report says. "Additionally, new stock entering the market is helping to elevate the average rate."