Office Leasing Decisions Still On Pause As Tenant Demand Stagnates, Per New Report

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Demand for office space this spring remained well below pre-pandemic levels, new data shows, as companies continue to delay leasing decisions amid the slow return to the office.

The VTS Office Demand Index, which tracks in-person and virtual new tenant tour requirements, was down 14.1% year-over-year in May, the commercial real estate tech firm reported Wednesday.

The tours are a leading indicator of who is leasing space, and a signed lease can represent a five-to-10 year bet on personnel needs for an employer. With remote or hybrid work schedules still being hashed out, some employers aren't ready to make that bet, VTS CEO Nick Romito said.

"Many employers are pausing major leasing decisions until they know more about their long-term plans around remote work," Romito said in a statement. "We expect that if and when they decide to look for more space, they’ll be walking, not running into the market, as they navigate what the office means to them."

Overall office demand did tick up by 3.1% from April to May, VTS reported. But for eight consecutive months, office demand has remained between half and two-thirds of the normal pre-pandemic rate of demand, according to the report.

Though most core office markets saw little change in demand from April to May, New York and Chicago both saw changes.

Demand in New York City rose 13%, putting it at about 80% of pre-pandemic levels. Chicago, however, fell 14% month-over-month, wiping out gains from the previous month.

The slow return of leasing demand comes as many employees are still working remotely, with daily office usage remaining well below pre-pandemic levels. According to the latest Kastle Systems data released Wednesday, office occupancy in the 10 markets it tracks averaged 44.2% last week, up from 44.1% the prior week and 44% the week before that.

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