Sell for More News is a weekly blog series with interesting information from the world of commercial real estate.
As companies begin to return to the office, look for them to reevaluate their space strategies. This could involve a thorough overhaul of all aspects of their space…including the amount of space needed, where it’s located and it’s cost.
In addition, firms will explore ways to increase the flexibility of lease terms.
It may take several quarters and multiple phases of reopening before firms can fully assess their space needs.
Any sizeable flow of sublease space to the market is not likely until the latter part of the year.
The true test will be the second half of the year once occupiers have had time to adjust to their new work environments and more accurately assess their space needs.
Expect any decline in rents to be more prevalent in older Class A and commodity space.
Ultimately, office space demand will be determined by the shape and timing of the economic recovery. We expect the rebound to pick up steam in Q4 2020 and Q1 2021.
However, since real estate lags the economy…we may not see the strongest office market metrics until the end of 2021 or well into 2022.
It is expected that firms will shift to a more diverse and employee choice-based portfolio. This could involve a combination of retaining a downtown headquarters (perhaps in a reduced footprint) coupled with suburban hubs, flex space and remote working.
The COVID-driven work from home experience has shown that remote work is here to stay. Both employees and their managers see the benefits.
The office will become more of a destination that will attract workers to what the office does best: gathering, knowledge transfer, on-boarding, social interaction and connection to brand, culture and mission.
Flexible workspace operators are already focusing on de-densifying their workspaces, with many reducing the capacity of certain work areas by as much as 50%.
Big company interest in flexible office space could be on the rise as firms seek shorter-term commitments during this period of uncertainty. This presents an opportunity to attract such clients for the longer term as well.
While transactional evidence is limited, any price discounts to date have been in the range of 5% to 10%.
Should the recession prove to be short lived, we may be looking at more of a slowing in sales activity as opposed to a wholesale drop in pricing.
Perhaps the greatest issue facing owners and investors is the desire for flexibility. On an overall basis, occupiers look likely to gravitate to shorter-term lease commitments, thereby creating a shorter income stream, with implications for valuations.
On the positive side, we anticipate a low-interest environment through the end of next year.
Given the uncertainty of global market political and economic stability, companies are beginning to investigate opportunities to relocate operations back to North America.
The workforce trend of on/near-shoring could provide benefits for office and industrial markets as those companies looking to migrate operations from the Asia Pacific and European markets become increasingly more attractive.
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@BeachwoodSells.com