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Demand for Office Space Up Year-Over-Year for the Sixth Straight Month

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Spurred by growth from large tenants, both Los Angeles and New York City experienced significant growth in demand, according to the Q4 2023 VTS Office Demand Index (VODI) quarterly report.

Nationally, demand for office space rose in December on a year-over-year basis, marking the sixth consecutive month of annual growth and giving new life to the office market. This trend reversal follows 15 consecutive months of monthly annual declines in demand for office space, according to the quarterly VTS Office Demand Index (VODI). The VODI tracks unique new tenant tour requirements 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.

Nationally, the VODI increased to 55, marking a 19.6% year-over-year and 7.8% quarter-over-quarter rise in demand for office space. Aside from the immediate decline in demand during the heart of the pandemic, the national VODI bottomed out in December 2022 at 44 and has trended upward since.

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Likely spurring the trend reversal is positive economic data easing recession fears and stabilizing work-from-home rates. Combined, the two indicators have reduced uncertainty and injected confidence in the minds of employers with regard to committing to new office space.

“The first step in the recovery of the office market is to stop the bleed, and according to our data, we likely have. However, it is still too early to call a bottom nationally,” said Nick Romito, CEO of VTS. “Today, the office market is stable, but it is also fragile. While the cards are stacked in favor of a slow but steady recovery, it wouldn’t take much to startle employers again and pause any upward momentum.”

Locally, both New York City and Los Angeles experienced impressive annual growth on an already elevated base, up 38.9% and 46.8%, respectively, and up 21 and 22 points, respectively. In both cities, the demand was driven by an increase in tenants looking for large spaces (greater than 50,000 sq. ft.).

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“Among all cities, New York City and Los Angeles have been the leaders in paving the way to recovery for quite some time. As they get closer to their eventual normal, it becomes harder to see large jumps in demand, but both cities did just that. It is sustained and remarkable,” said Ryan Masiello, chief strategy officer of VTS.

“Employers in New York City and Los Angeles are assessing their needs, looking into their crystal ball and making bullish bets on their future.”

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