Despite slow recovery in some tech-centric cities, the office market is finally recovering in the nation’s largest metros, with one big exception.

That’s according to a recent report released by VTS, a commercial real estate management software company, which found third-quarter office demand increased by 11.8% from the previous year.

Demand did fall by 8.1% from the previous quarter, but that decline is in line with seasonal norms.

The VTS Office Demand Index, which tracks tour activity for office properties, revealed office markets have begun to thaw in San Francisco, Boston, Chicago and Seattle. But new demand is still highest in Los Angeles and New York.

Washington, D.C., however, may be another story.

Demand for office space in the nation’s capital fell 20.5% from September 2023 to September 2024 — with the presidential election as one big factor.

“Each city has its own unique factors driving or stalling office demand,” said Ryan Masiello, chief strategy officer at VTS. “Washington, D.C., stands out as the only market where office demand has significantly declined and it’s no surprise that the upcoming presidential election is causing some hesitancy among tenants.”

Return-to-office holdouts no more

Coming out of the pandemic, tech hubs San Francisco, Seattle, Boston and Washington, D.C. were considered the most remote-friendly while New York, Los Angeles, and Chicago were less so. According to the most recent VTS index, that gap is shrinking.

Seattle shows the highest year-over-year growth in office demand — up 114.29%. Boston followed with 31.43% and San Francisco came third, up 25%.

While demand grew less aggressively in Los Angeles and New York, their overall recovery continues.

Office demand in the Big Apple increased almost 100% from March 2022 to March 2024. And while leasing has leveled off slightly since, that may be due to Wall Street leading the initial charge in return-to-office.

As for Washington, D.C., a market somewhat in flux due to the election, it could still see a flurry of leasing activity in late 2024 or early 2025 once the election results provide some certainty for tenants who have been playing the waiting game.

Return momentum likely to increase

According to VTS analysts and other commercial real estate insiders, as corporate heavyweights increasingly scrap or dial back hybrid policies, others are expected to follow suit.

In September, the VTS office index score was 57, a quarter-over-quarter decline of 8.1% from a score of 62 in June, but movement of less than 10% is still considered modest. Outside of pandemic years, the VTS office index score declined by an average of 13.8% from June to September during 2018, 2019, 2022 and 2023.

But, in a year-over-year comparison, the index score rose 11.8%, which VTS attributes to a shifting labor market that puts bargaining power back into the hands of employers, who often prefer to have workers onsite. That corresponds to a higher demand for office space.

OpenAI has recently secured large new office spaces in San Francisco and New York City and Nvidia is expected to quintuple their office footprint in Austin in the coming months.

“Tech giants like Amazon, Salesforce and Apple are making strategic moves toward bringing employees back to the office, following months of careful planning and office space evaluations,” said Nick Romito, CEO of VTS.

“The data reflected this shift starting in early 2024 and the trend shows no sign of slowing down,” he said. “I anticipate more companies will announce their return-to-office plans in the coming quarters.”

As for the future, VTS points to strong job growth numbers as reported by Bureau of Labor Statistics combined with a slightly higher unemployment rate of just over 4%. While still historically low, current unemployment is higher than rates from 2022 and 2023.

Additionally, tenants who have hesitated to renew office leases could be forced to finally commit, especially as the flight to quality continues in the nation’s fastest-growing metros.