As COVID-19 cases continue to fall in cities across the United States, the office sector is beginning a slow recovery. But not all recoveries are equal, with office markets with a greater percentage of remote-friendly jobs bouncing back more slowly, according to the VTS Office Demand Index.

And the opposite? Cities in which there is a smaller percentage of remote-friendly jobs are seeing their office markets rebound at a quicker pace.

The VTS Office Demand Index, or VODI, tracks tenant tours, both in-person and virtual, of office properties across the country. It is recognized as one of the earliest indicators of upcoming office leases.

VTS is a leasing, marketing and asset management platform for commercial real estate.

In Seattle, Boston and San Francisco, the share of jobs that are remote-friendly ranks among the highest in the country. It’s not surprising, then, that this latest VODI finds that the office markets in those cities have recovered the least, with their level of office-lease demand down 39, 43 and 46 percent from their 2018-2019 average, respectively.

Markets with a substantially lower share of remote-friendly jobs, Chicago, New York City and Los Angeles, are only down 14, 15 and 24 percent from their pre-pandemic levels, respectively.

“The pandemic didn’t just change the way we work, it changed the way we live. Many workers have found value in remote or hybrid work and may be reluctant to go back to the way life was pre-pandemic,” said VTS chief executive officer Nick Romito. “In cities with higher rates of fully remote jobs, hiring and retaining talent means employers will need to provide choices and flexibility, including fully remote and fully in-office.”

VTS found that after a strong burst in early 2021, demand for office space across the country slowed slightly in May. After rising 173 percent in the first four months of the year, demand for office space fell 8.5 percent in May from April. But demand in May is still five times higher than the pandemic low in May of 2020.

The May decline, likely fueled by a seasonal lull and an easing of pent-up demand, marks a reversion to office demand’s normal see-sawing behavior, VTS said.

“Demand for office space tends to follow seasonal patterns; it should not be concerning that most markets saw demand for office space taper in May,” said VTS chief strategy office Ryan Masiello. “Depending on the market, we anticipate that demand will continue to fluctuate this summer before rising again in August and September.”

In more good news for the office sector, as of May more than half of the markets covered were within 25 percent of their pre-pandemic benchmark level, a level that more closely resembles pre-COVID-19 normalcy. All markets, with the exception of Chicago and Los Angeles, saw demand for office space recede in May with Seattle losing the most ground, down 24 percent during the month.

The Chicago office market is especially promising now. VTS says that as of May, Chicago had a VODI of 86, which makes it the closest of all big-city markets to its pre-pandemic level of demand. Chicago is also the only major market to see an increase in demand for office space in May.

One of the only constant things about commercial real estate is how much it changes. Trends cause shifts in demand, technology brings in new methodology and, as Texas CRE pros know all too well, a new presidential administration can alter how things are done. The Biden administration has already proposed restricting 1031 exchanges to $500,000 of gain, a move against which Asset Preservation, Inc. is pushing hard.

“The whole real estate industry has been working for two years to show Congress how much it would hurt jobs if they cut 1031s down,” says Greg Lehrmann, Attorney and Senior Vice President with Asset Preservation. “It would freeze capital.”

Asset Preservation, owned by Stewart Title, is one of the largest 1031 qualified intermediaries in the nation and a popular resource for would-be investors interested in a 1031 exchange. So named because it was created in IRC Section 1031, a 1031 exchange allows investors to swap one property for another, deferring capital gains taxes. In doing so, Lehrmann argues it keeps the commercial real estate market buzzing.

“When investors know they won’t have to pay capital gains, they’re more likely to make more transactions,” he says. “That means the title company employees make more. The real estate agents make more. The landscaper makes more. Home Depot makes more. Everybody makes more when people can trade up in real estate without paying taxes and the government actually receives higher ordinary income-tax rates on the additional income earned by all those people and companies.” That’s exactly what he says is happening right now as investors sell off high-maintenance real estate and exchange it for what he calls “mailbox money,” more passive real estate.

“They have three choices: buying into a triple-net property, investing in a Delaware Statutory Trust (DST) or banking on income-producing minerals,” says Lehrmann. Click to read more at www.rednews.com.