Friedman Real Estate’s Post

With the shortage of new office supply, the repurposing of obsolete buildings, and the growing momentum behind return-to-office mandates, it seems like the office sector is on track to follow the evolution we’ve seen in multi-tenant retail. If you’re doubtful about the future of office spaces, ask yourself this: Imagine two startups with the same skill set and product. One operates fully remote, while the other brings their entire team into the office daily, collaborating face-to-face. Who would you invest your money in to deliver the best product to market first?

Many suffering central business districts (CBDs) have tried to reposition their office assets through conversions to residential, medical, or even industrial. Typically, however, they're incredibly costly - and demo'ing the building for a full redevelopment can often make more sense from a yield perspective. Chicago is trying to aid office building conversions and redevelopments to combat their own dying CBD with a $1.25B bond "for affordable housing and [CBD] development". Much like Phoenix, Chicago has seen record numbers of valuations in their suburban/secondary markets - where much of the pre-COVID CBD traffic has fled to. However, their office vacancy has risen to 16.3%, compared to the national average of 13.8%, and Phoenix's 16.2% as of May 30th, 2024. This is mostly attributed to, as aforementioned, those CBD areas. Certainly a worthwhile effort; time will tell if it will truly bear fruit. #officeleasing #redevelopment #tenantrep #phxwc #ccim https://lnkd.in/gff_EWkw

One Vanderbilt is now 100% leased with asking rents north of $250.00 per square foot, indicative of today's office space market in New York City. It's a tale of two markets...modern, high quality and well amenitized buildings are successfully attracting tenants who believe in office space for productivity and talent/employee retention/recruitment versus lower quality older "C class" space having inelastic demand despite significant decreases in asking rents. https://lnkd.in/eiuX24Jq

The Weekly Perspective | Signs of Light in Sacramento's Office Market as Vacancy Rises Again  In the third quarter of 2024, Sacramento’s #office market #vacancy rate increased to 21.3% (+124 bps Y/Y), however, brokers are seeing early signs of recovery, according to the Business Journal’s cover story last week. Without the State of California vacating 281,000 SF during the quarter, net #absorption would have been slightly positive. The State of California’s reshuffling out of leased space in privately owned buildings into new owned #construction (like the 1.25 MSF May Lee State Office Complex completed this year) is significantly bringing #occupancy down. Many companies (even the State) now recognize the need for employees to gather in the office two or three days a week, even as #remotework remains prevalent and downsizing of 20% to 30% continues. Tenant preferences have shifted toward smaller, high-quality spaces with strong #amenities to support #hybridwork. And landlords are now chasing tenants. Some submarkets like Highway 50 East in Rancho Cordova, full of older vacant call center buildings, will struggle to attract tenants. Micromarkets like Capitol Mall are performing quite well despite larger submarket trends. Campus Commons is seeing record high rents, however, some buildings are being planned for redevelopment to #housing, highlighting the market's complexity. Navigating these obstacles requires an expert advisor on your side to make the best decision for your company or asset. Once the State’s planned move-outs finish by mid-year 2025 and interest rates continue to come down, the office market could start to finally realize some positive momentum as #returntooffice requirements ramp up and additional #leasing decisions are made in the next six months. https://lnkd.in/gfcd6zVP #CommercialRealEstate #OfficeLeasing #MarketTrends

Cushman & Wakefield's Spring 2024 5-Year San Francisco Office Market Forecast. It's difficult to forecast the next year, let alone the next 5. Kudos to the Cushman & Wakefield Research Team for their excellent work - the best in the business. I have a few observations/comments: 1. Negative Deals. This is the market reality for many landlords. Rents in the $50s and $60s don't work well when the cost to build new space is ~$250/sf, typical operating expenses and taxes are ~$25/sf, commissions are ~$40/sf, and a 10 year lease will include 8 - 12 months of free rent. The net effect, before debt service, is a loss (a negative deal). 2. It's Happening. The long anticipated steep decline in rental economics is happening now. 3. Ghost Buildings. One factor keeping the market from falling even further (counterintuitively) is the presence of Ghost Buildings, buildings in which the landlord is only able to do transactions that require little or no capital - these assets become inactive in the market. 4. Overly Optimistic. Personally, I think the forecast is too optimistic. Demand continues to decline, causing negative net absorption, increasing supply. As leases expire, it's still typical for the next deal to be smaller (at least 30% smaller). From where we sit today, seems hard to believe demand will accelerate such that vacancy caps out at 36% and begins to decline in 2026. Further, I'm not sure a couple of point drop in vacancy which stands above 30% will be a catalyst for rent growth. #lowfogg #research #insights

Let's examine the current office and industrial market situations in Jacksonville, Florida. 🔎 At the end of Q2 2024, Jacksonville's office market is experiencing elevated vacancy rates and subdued demand. The vacancy rate has increased to 10.8%, with further rises expected due to ongoing weak demand. Leasing activity has been healthy with 2.4 million SF leased over the past year, but the amount of available space has increased by over 20%, driven by large blocks of space being returned to the market. Despite this, rental growth remains positive at 2.0% year-over-year, though a decline is anticipated by year-end. Jacksonville's industrial market is seeing a surge in new developments but a slowdown in leasing activity. Net absorption has been negative for four consecutive quarters, with total demand decreasing significantly. Larger spaces are becoming harder to lease, whereas mid-sized spaces (25,000-100,000 SF) continue to be highly sought after. #IndustrialMarket #OfficeMarket #NorthFlorida #Q2 #MarketTrends Source: CoStar Group and Avocat research team.

My perspective on Tenants ability to maximize their opportunity in today market! #commercialrealestate #losangeles #tenantrep #leasing #stateofthemarket NAI Capital Commercial NAI Global Tenant Consulting Group #Tenants #office

I'll be honest, I didn't expect this. I did expect commercial real estate to struggle post-pandemic. But I wouldn't have guessed that urban offices would struggle more than suburban ones. I thought that tide was shifting. From The Wall Street Journal article: "For the first time since at least the late 1990s, city-center offices have been emptier than suburban locations for eight consecutive quarters, based on data from real-estate consulting firm Colliers. Big-city tenants still want to be downtown, close to a large pool of workers, but they are shrinking their real-estate footprints more aggressively once their leases come up for renewal." #remotework #officework #returntotheoffice #hybridwork #workfromanywhere #workfromhome #realestate #corporaterealestate #economy #jobs https://lnkd.in/e9Wpvv8i

🏢➡️🏘️ Office-to-residential conversions are reshaping cities across the U.S. With high office vacancy rates and a persistent housing shortage, cities are increasingly turning to conversions to address these challenges. Local governments are rolling out incentive programs, and cities like New York, D.C., and Minneapolis are making major progress—but more support is needed. 🎧 In a recent CBRE podcast, Spencer Levy, Co-Chair of RER’s Research Committee, discussed how Cleveland is leading the charge on office-to-residential conversions and what it means for housing and urban revitalization. https://bit.ly/4eDM4WJ However, regulatory and financial hurdles remain. Policymakers should expand incentives and streamline processes to unlock the full potential of these projects. 📖 Learn more about our recommendations to accelerate progress on property conversions: https://bit.ly/3Y5Vvap #CRE #PropertyConversions #UrbanRenewal #AffordableHousing #HousingPolicy

Excited to share insights on the evolving landscape of the Columbus market! Here's a glimpse into what's been happening: Office Market Update: Negative absorption marked the start of 2024, with a rise in vacancy rates to 17.44%. Suburban submarkets like Worthington and Westerville experienced significant negative absorption, attributed to many smaller tenants vacating or downsizing spaces. Asking rates began the year with a slight decrease to $21.27 psf, but with expectations of upward movement as more speculative office spaces are delivered. Notable delivery: 6620 Mooney Street in Dublin, with 45,000 sq ft partially leased by Central Insurance, adding 121,721 sq ft of inventory to the office market. Growing preference for sublease space amid economic uncertainty, with over 100,000 sq ft leased in the past two quarters. Potential for buildings transitioning into receivership due to loans coming due, particularly affecting class B and lower-class A buildings. Industrial Market Insights: Continued slowdown in demand due to macroeconomic concerns, leading to reduced leasing velocity. Shift towards built-to-suit (BTS) projects, now constituting 70% of current construction (7.8 million sq ft), including significant involvement from Intel. Sublease space remains over one percent of total available space, with expectations of further increase given economic uncertainties. These trends underscore the resilience and adaptability of the Columbus real estate market amidst changing dynamics. Check them out here! https://lnkd.in/gdPvh7ac #colliersresearch #colliers #columbusoffice #columbusindustrial