The stock prices of some of America’s biggest office REITs fell again on Tuesday as concerns about the Omicron version of Covid weighed heavily on the market. These changes are due to a decrease in office demand that had seen a sharp increase in the second half of last year. Covid19 vaccinations were promising a safe return of work.

These stocks are from the biggest office REITs like Boston Properties, SL Green, Douglas EmmettAnd Alexandria Real Estate EquitiesAll fell precipitously Friday when the news about this variant broke. They have not recovered. Stocks had increased by 25% over the past year.

The S&P 500 also fell on Tuesday, down more than 1.5% in morning trading.

A new report by VTS (a commercial real-estate asset management firm) shows that October’s office space demand fell to the lowest point since the first quarter. This is the second consecutive monthly drop. Nationally, the demand has dropped 30% since August when it reached its peak.

VTS monitors new tenant offices tours in the core U.S. market areas as an indicator for upcoming office leasing activity.

Since June 2020, new office demand has been on the rise. By August, it had increased by 444%. The increase in demand is likely to be due to an optimistic return-to work scenario. Covid19 case numbers fell, and vaccines increased. New concerns have raised questions about this trend.

Nick Romito CEO of VTS stated that as we approach the 18 month mark after the outbreak of the pandemic both employers and employees have mostly adapted to new ways of working. In many cases this means semi-remote or permanent work. “The longer we stay in limbo—the place where, even with vaccines and better Covid-19 treatments, there is still trepidation about returning to work—the greater the likelihood we have a permanent loss of demand for office space and eventually, a new normal. Office leasing is not a matter of time.

Los Angeles, San Francisco and Boston saw the biggest declines in their demand. New York, Chicago, and Washington, D.C. saw their new demand drop by 10% or less in October. These differences are likely to be due to the strength of these markets before the pandemic. New York and Chicago were very strong, as was the presence of remote-friendly companies.

There are also variations in the type and price of properties that attract buyers. This is not shown in the national statistics.

Alexander Goldfarb (senior research analyst, Piper Sandler) stated that “the divergence in quality between generic office and top quality office is growing.” The majority of leasing takes place in new buildings and renovated buildings. Losers are run-of the-mill office buildings. This trend has been accelerated by Covid.

Goldfarb stated that he cares less about the variant than competition between companies seeking quality labor.

These companies are concerned about the possibility of great resignations. Goldfarb stated that many companies won’t enforce return to work if their employees are capable of leaving and moving to another company.

While companies might use the latest version of the software to encourage office space return, he says, fundamental office principles are still good.

We are concerned that the office will be like the Amazon panic of a few years back. “The stock performance has become disconnected from the fundamentals,” he stated.