US office sector bottoms out

The US office market bottomed out in late 2022 and early 2023, according to analysis from tech platform VTS. The company, which provides real-time property data across more than 1.3bn sq ft of floorspace, made the declaration after seeing more than a year of increasing new demand for office space nationally. New demand for office space across the US marked its 12th consecutive month of year-over-year growth, according to the VTS Office Demand Index, generating a score of 62 at the end of Q2 2024. This was up by 17% on Q2 2023 and 34% on when the market bottomed out in December 2022 and January 2023. The firm said that after peaking in August 2022, office-using employment fell by 3.9% by early-2024, but that trend has stopped, and growth had remained almost flat since then. Work-from-home rates have also declined in recent months, yielding greater demand for office space. “They say you can only see a market bottom after it has long passed, and demand for office space is no different. In the months after the now-declared bottom, the national needle has moved up slowly, making it vulnerable to a quick about-face amid economic headwinds,” said VTS chief executive Nick Romito. “However, the growth the VTS Office Demand Index has experienced in the past 18 months, combined with positive data on the office-using workforce, tells me that the market has reset and the worst is officially behind us.” While growth in demand for office space nationally in the US is evident, VTS said that locally, it was more polarised, with markets such as Los Angeles and New York City experiencing healthy growth, while others, such as San Francisco and Washington DC, have largely remained unchanged for an extended period. Los Angeles saw demand for office space surge in the second quarter to an index score of 101, briefly surpassing its pre-Covid average. It now has a score of 88, almost double what it was when it bottomed out at 45 in early 2023. New demand for office space in Los Angeles has been fuelled by an increase in the average size of office space employers are seeking, up by about 20% in June compared to 2022. New York City has experienced a similar trajectory overall but had a weaker second quarter, found VTS. “Demand for office space in San Francisco continues to be volatile, which is primarily due to the tech-heavy workforce who largely continues to embrace remote work at a scale not seen across other industries,” said chief strategy officer Ryan Masiello. “Markets heavily reliant on the tech sector, such as San Francisco and Seattle, are following a substantially different post-Covid path than more industry-diverse markets like LA and New York City, and it may take a long time before we see office demand return to pre-Covid rates in San Francisco and Seattle.” VTS’s view that the market has stabilised was echoed in a message from Blackstone boss Jon Gray on the health of the investment markets this week. He said there had been a “healing” of the capital markets, which was increasing its deal making, added that the sharp decline in new supply of assets had created a “foundation for recovery”. “We think this is a great time to be investing capital,” he said. “We have been doing it for the last six months in real estate, I expect you will see a lot of it in the back half of the year as well.”