New Office Demand Retreated In September, Ending Pandemic Rebound

A significant decline in new demand for office space might indicate that the sector's recovery phase has ended.

The monthly View The Space Office Demand Index sank from 87 to 72 from August to September, the commercial real estate data platform reports. The index aggregates data from seven of the largest office markets in the U.S., each of which saw individual declines in September as well.

September is often a slower month than August in terms of office demand, but the 15-point pullback in the index, which uses the pre-pandemic average of demand to benchmark at 100, is a steeper drop than seasonal changes have historically been, the report says. September's decline in demand could also have been a delayed reaction to the delta variant driving a resurgence in cases in the late summer. The delta surge peaked on Sept. 1 nationally, The New York Times reports.

The third potential reason VTS cited for the drop in demand is tied directly to the nine-month advance the index showed, which ended in August. With some of the first office-using employers to resume in-person work doing so in the late spring, some demand that would have normally shown up in September could have been pushed up as tenants sought to lock in deals before competition picked up further, the report says.

The seven markets that the index aggregates to determine its national figures — New York, Los Angeles, San Francisco, Chicago, Seattle, Boston and Washington, D.C. — have varying levels of remote-friendly jobs, and the levels of demand for office space mostly correspond with how remote-friendly a market is.

San Francisco and Washington have the highest ratio of remote-friendly jobs, according to VTS, and their local demand indices are half of what they were pre-pandemic. Less remote-friendly cities like New York and Los Angeles have regained about 80% of their demand. Seattle, with a relatively remote-friendly job market, is the major outlier to that trend, with its local index at 90.

Though a majority of companies have yet to finalize their plans to find a balance between remote and in-person work, enough indicators have emerged to instill confidence that hybrid work will be a much more significant element in the office sector. With that notion approaching a consensus, the September drop could very well be an indicator that office demand has resumed the monthly peaks and valleys that defined the VTS Office Demand Index before the pandemic, VTS reports.