Demand for Office Space Grows Amid Subsiding Work-from-Home Rates

Los Angeles’ demand for office space is now within the realm of pre-COVID normal

Nationally, demand for office space recorded its ninth straight month of positive year-over-year growth, just as work-from-home rates hit their lowest levels since the onset of the pandemic. Up 18.2% in Q1 and 12.1% from February to March, the national VODI now sits at 65% of its average 2018-2019 level, 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.

Supporting the need for office space is declining work-from-home rates across major office markets. After the initial push to return to the office in 2022, the share of days worked from home actually began to rise in 2023, peaking in October 2023 before plummeting 31.4% from November 2023 to March 2024.

“We are hearing on the ground and on the streets that working from the office is increasingly becoming the norm again for many industries and metro areas. However, there are holdouts, and they are putting their heels in the ground,” said Nick Romito, CEO of VTS. “We see this most prevalently in Seattle and San Francisco, where the job growth curve is strong, but the number of days working from an office is not increasing in lockstep. Given this pattern’s persistence, there is likely a significant culture shift at play, and further improvement will likely be more drawn out.”

The gap between the more remote-friendly (e.g., Seattle, San Francisco, Boston) and less remote-friendly (e.g., New York City, Los Angeles, Washington, D.C.) cities existed prior to the COVID-19 pandemic but has progressively widened. From October 2020 to September 2023, the average gap between the two groups was 28.3%. In the six months from October 2023 to March 2024, the average gap was 37.1%.

Los Angeles and New York City Within the Realm of Normal
Two of the less-remote-friendly cities, Los Angeles and New York City, recorded near-normal rates of demand for office space in March compared to the years leading up prior to the pandemic. Los Angeles has recently experienced the highest recent upward thrust of all markets, recording a VODI of 85 in March. Demand for office space in Los Angeles is now up 88.9% over the past 13 months. While a VODI of 100 is considered the par for pre-pandemic “normal,” inherent volatility means that a VODI of less than 100 can be common even in normal times.

While New York City’s VODI has not risen with the same gusto as Los Angeles recently, it has still shown a similar scale of resurgence. Once at a low of 44 in August 2022, demand for office space in New York City is now at a VODI of 86, an increase of 95.5% over the 19-month period.

“As I look at the recovery in both Los Angeles and New York City, I can’t help but think of where they were and how far they’ve come. Quiet streets have given way to the regular bump-and-grind, eateries are bustling and hailing a cab in New York City has once again become a competition of the survival of the fittest,” said Ryan Masiello, chief strategy officer of VTS. “We are starting to see the beginnings of a similar revival in San Francisco, but it’s slow and I expect they will take a different track to normalcy. Instead of the same major tech employers leading the way in the return to the office, we will see employers in more traditional lines of work take advantage of the opportunity.”