The tech industry has seen a pronounced decline in job postings in recent months but demand for new office space in tech-heavy cities declined among the least in July.
That’s according to the latest VTS Office Demand Index (VODI), which tracks new tenant tour requirements – both in person and virtual – of office properties in core U.S. markets and is the earliest available indicator of upcoming office leasing activity.
In terms of job posting measures, the tech industry registered a more pronounced decline in recent months compared to the overall labor market, which peaked around late 2021 and early 2022.
The contrast was particularly notable in San Francisco and Seattle, where the VODI found Indeed job postings to have fallen by 9.4% and 9.5% since March, respectively. For comparison, all other markets registered declines of between 1.8% and 6.5%.
Despite this decline, demand for new office space in the cities declined the least in July, falling just 7% and 14% month-over-month, respectively – which is still well below their pre-pandemic normal, VTS said.
“At the city-level, the slight cooling of the job market, does not appear to have impacted new demand for office space so far,” commented Ryan Masiello, Chief Strategy Officer of VTS.
“Despite recent economic concerns within the tech industry, which have even included layoffs at high-profile companies, office demand in Seattle and San Francisco actually fared better in July than the other VODI-tracked cities, which is likely due to the reluctance of tech firms to re-emerge in the market meaningfully from the pandemic trough.
He added: “It remains to be seen whether these tech-centric markets will see office demand impacted on a larger scale in the coming months.”
Overall, New demand for office space fell to just over half of its pre-pandemic pace in July. Countrywide demand dropped 11 VODI points from 63 to 52 in July, which equates to a 17.5% month-over-month decline, falling to its lowest level since February 2021.
While July declines are typical – July 2018 saw a 4.5% drop, followed by a 5.7% fall in July 2019 – this one is three times greater, VTS said.
“We’re used to seeing demand for office space cool in summer months, but not at this rate,” commented Nick Romito, CEO of VTS. “Unique to 2022 is an economic outlook that is continually shifting and is likely contributing to a reduction in new office demand, as uncertainty causes some potential tenants to delay or reconsider their current office space needs.
This month’s declines also come after three months of relative stability observed in the VODI, he added.
“Quarter-over-quarter, the VODI is down 20 percent, similarly in the quarterly trend to that of this month’s 17.5 percent fall speaks to that stability,” he continued. “The continued positivity in labor market performance is a hopeful indicator as we gauge employers’ reactions to other economic concerns in the months to come.”
Chicago, Boston, and New York City saw the largest VODI declines in July, with all three cities having a relatively large share of finance, insurance, and real estate (FIRE) among their office-use demographic.
It’s a sector that is particularly sensitive to rising interest rates – a characteristic that aligns with these cities’ sharp decline in new office demand. As a result, demand in Chicago dropped 29.9% to below half of its pre-pandemic pace, while Boston and New York fell 26.1% and 16.2% month-over-month respectively.
