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An article appeared in GlobeSt.com on Tuesday 8/7/24' that touched on a post-pandemic phenomena in the U.S. office market that I've posted about in over the past 18-months. The theme of "Pickier Tenants, Longer Timelines And Free Food: The Life Of Today's Office Tenant Rep Broker" focuses on the challenges faced by brokers specializing in Tenant Representation in many 1st and 2nd tier U.S. cities. As the founder of a 32-year old commercial real estate brokerage firm that specializes exclusively on representing office and industrial tenants, I can assure you the challenges of representing office tenants in today's market are many. Conventional wisdom would lead us to believe office tenants have an abundance of great options available to them when leasing office space today. The problem however, the supply of available average and aged office space is great, however, the supply of great office space is not. Over the past two years, businesses have struggled to get employees back into the office without causing a mass exodus of employee resignations. Employers have had to get creative with incentives intended to get employees back in the office. One incentive many businesses have found attractive because it doesn't add HR related cost to businesses' P&L is the office space. Employers have found, with the help of creative landlords and building owners, they can locate their businesses in office buildings and office parks that are rich with amenities and services available to the tenants' employees and often at no cost beyond the rent the tenant is paying. Yes, amenity rich class "A" office buildings demand a higher rent. But is it really more costly to the business occupying great office space when considering the average office tenant in the U.S. pays roughly 5-9% of its overhead to office rent and 70-85% of its overhead expense is employee related cost. Now consider the impact on a business that bumps its rental cost by 5% while improving employee productivity by 10% after getting employees back into the office to collaborate and focus on their work. Of course these are hypothetical numbers, but in general, I believe every business that depends upon its employees will find similar gains. Now the issue as identified in the Globe Street article: as businesses have identified the gains of occupying better office space, a "flight to quality" as we call it in the business, has been occurring resulting in a scarcity of available great office options. While there is a glut of available office space in the market, the very best of the class "A" segment is actually scarce. Commercial brokerage firms that specialize in Tenant Representation, such as CARMEN - The Tenant Advisor, can guide businesses on this and other challenges in leasing office space in today's real estate market. https://lnkd.in/g_8wiUcq

𝗧𝗵𝗲 𝗘𝘃𝗼𝗹𝘃𝗶𝗻𝗴 𝗢𝗳𝗳𝗶𝗰𝗲: 𝗜𝗻𝘀𝗶𝗴𝗵𝘁𝘀 𝗳𝗿𝗼𝗺 𝗠𝗮𝗻𝗵𝗮𝘁𝘁𝗮𝗻 𝗮𝗻𝗱 𝘁𝗵𝗲 𝗦𝗽𝗮𝗻𝗶𝘀𝗵 & 𝗣𝗼𝗿𝘁𝘂𝗴𝘂𝗲𝘀𝗲 𝗟𝗮𝗻𝗱𝘀𝗰𝗮𝗽𝗲 This article from EjePrime (https://lnkd.in/dZTg_ZUg) sheds light on the interesting situation in Manhattan's office space market. While the headline suggests an "office apocalypse" with record vacancy rates, there's a surprising twist. Despite high vacancy, the market seems to be experiencing a resurgence in activity. The article highlights a recent large lease agreement, indicating that big businesses are still looking for office space. This suggests that the "office apocalypse" might be overblown. The key takeaway is that the function of offices might be evolving. The abundance of vacant space could be a sign that companies are re-evaluating their space needs. Perhaps they're opting for smaller footprints or prioritizing collaborative work areas. Large lease deals, even amidst high vacancy, suggest a continued importance of physical offices for some businesses. However, the overall trend points towards a potential shift in how office spaces are utilized. The recent news of Manhattan's office market offers interesting parallels to what we're seeing in the Spanish and Portuguese markets: 𝟭. 𝗛𝗶𝗴𝗵 𝘃𝗮𝗰𝗮𝗻𝗰𝘆 𝗿𝗮𝘁𝗲𝘀: Similar to Manhattan, both Spain and Portugal have experienced significant office vacancy due to the rise of remote work. 𝟮. 𝗘𝘃𝗼𝗹𝘃𝗶𝗻𝗴 𝗼𝗳𝗳𝗶𝗰𝗲 𝗳𝘂𝗻𝗰𝘁𝗶𝗼𝗻: Just like the potential shift in Manhattan, companies in Spain and Portugal might be reevaluating their office needs. This could lead to a demand for smaller, more collaborative workspaces. 𝟯. 𝗖𝗼𝗻𝘁𝗶𝗻𝘂𝗲𝗱 𝗶𝗺𝗽𝗼𝗿𝘁𝗮𝗻𝗰𝗲 𝗼𝗳 𝗽𝗵𝘆𝘀𝗶𝗰𝗮𝗹 𝗼𝗳𝗳𝗶𝗰𝗲𝘀: Large lease deals in Manhattan suggest some businesses still value physical offices. This is likely true in Spain and Portugal as well, with companies potentially seeking spaces that foster collaboration and company culture, which can be harder to achieve remotely. 𝗧𝗵𝗲 𝘁𝗮𝗸𝗲𝗮𝘄𝗮𝘆: While the office apocalypse might be an exaggeration, the pandemic has undoubtedly impacted how we work. Both the Manhattan situation and the trends in Spain and Portugal highlight a potential shift in how office spaces are designed and utilized. Companies are likely seeking spaces that cater to a more hybrid work model, with a balance between remote work and in-person collaboration. 𝗟𝗼𝗼𝗸𝗶𝗻𝗴 𝗮𝗵𝗲𝗮𝗱: It will be interesting to see how office markets in these regions adapt to these changing needs. Perhaps we'll see a rise in co-working spaces, flexible lease options, or office designs that prioritize collaboration and employee well-being. Stay tuned for our next lecture where we'll delve deeper into the evolving office landscape in Spain and Portugal!

Let’s talk about Office. During the pre-pandemic period (2009-2019), the Salt Lake metro area experienced a significant office boom, with an average annual absorption rate of 747,726 square feet. However, from 2020 to 2023, due to the rise of remote work and tenant downsizing on the heels of the Covid-19 pandemic, office absorption dramatically declined, averaging negative 1,043,936 square feet per year. This stark contrast in absorption rates raises a critical question: How long will it take for the Salt Lake office market to fully recover, if it ever does? If we assume the pre-pandemic average absorption rate and hold inventory constant, it will take approximately 4.73 years for the market to rebound and reach a stabilized 85% market wide occupancy rate (the average over the past 10 years), based on the current market wide vacancy of 24.4% or 9,273,875 SF. To some active in the office investment world, this scenario may seem overly optimistic given the significantly muted tenant demand owners have been battling across the country. Conversely, if we base our projections on the recent negative absorption rates, the market will continue to deteriorate indefinitely, which also seems extremely unlikely. See historic absorption showcased below. Our forecast falls somewhere in the middle. Like all real estate, office is inherently cyclical, experiencing periods of growth and decline. Factors such as office-to-residential conversions (e.g., local projects South Temple Tower/Seraph, HK Tower, and America Plaza 1/AP1 Lofts) and sales to owner-users (e.g., local transactions Skullcandy HQ, Wasatch Corporate Center – Building 16, City Centre, and the eBay Campus) will likely reduce the overall office inventory in Salt Lake County, which stood at 38.6 million square feet as of Q1 2024. Additionally, heightened construction costs and historically high office vacancy rates (25% in the CBD alone) will further influence this trend. Downtown Salt Lake City has already experienced a reduction of the total multi-tenant inventory base of roughly 6% due to office-to-residential conversions and owner-user acquisitions, and we believe we are just on the front wave of this market correction. The office market will not remain in its current state indefinitely. Like the retail sector’s right-sizing, we predict the best of the best, true class A, well-located office is set to continue to see strong demand, while more commodity and less-amenitized office will struggle and will likely become candidates for conversion or even demolition in the coming months and years. Lastly, Utah's strong core fundamentals and high quality of life position the Salt Lake metro area for future growth, attracting the next wave of tenants and occupiers. The chart below shows the time to stabilization (85% occupancy) at varying percentages of pre-pandemic tenant demand. Please feel free to reach out to discuss our analysis and the general office market further. Kip Paul JT Redd

I believe the following article written for Forbes by a fellow office and industrial tenant representative, David Marino of San Diego based Hughes Marino, provides business owners and managers with a good perspective on the current office lease market and what they can expect during 2024. A few key take-aways from Dave's article: 1. Business owners and C-suite managers are perplexed that today's office rents have not decreased as a result of lower occupancy rates within office buildings, which have been mostly caused by changing work models allowing for employees to work from home full-time or on a hybrid work schedule. 2. There is a difference between vacant space and unoccupied space.....even though employees may have gone home, the companies they work for are continuing to pay rent on those offices until the leases expire. Therefore, perceived vacancy is greater than actual vacancy. Further, many leases signed with terms of 5 or more years just prior to Covid have not yet expired, which has allowed for landlord to face increased vacancy over time rather than deal with a surge of vacant space coming back on the market. 3. The market has become more polarized with respect to quality of office space. In spite of the softening market, many office buildings at the top of the market are flourishing, while the average multi-tenant office building is getting hammered with vacancy. As businesses struggle to get employees to return to the office, they are trying to entice employees back by providing work environments that provide a broad array of amenities and services, along with nurturing work spaces. We call this a flight to quality or flight to experience. 4. Many, maybe even most, property owners have mortgages on office buildings that were underwritten with rents they received prior to the pandemic. Now in a softening office market, accepting lower rents on their space would commit landlords to losing money during the terms of those leases. Therefore, at least until now, landlords have been reluctant to accept rents that would commit them to such losses in spite of vacancy. Further, many of the mortgages contain terms that make it prohibitive for landlords to accept rents lower than agreed to in the loan underwriting.

When the office sector was struggling, the tech sector represented a glimmer of hope. Massive expansion demanded appropriate (and premium) office space to satisfy the demand for rapid tech evolution and amenities that would keep top talent happy. But unfortunately, no industry has been immune to the market downturn of the last few years. Major tech forces have been cutting down on their footprints and personnel to survive the recessionary storm. But, since tech was such a premier player behind the drive for office demands, its pullback has had huge implications on the overall vacancy rates. Tech office leasing has hit a tailspin, driving property devaluations in major metropolitan hubs like New York, San Francisco, and Los Angeles. But on the upside, commercial tenants have more leverage than ever to find the perfect office space for a highly affordable price.What Does the Slowdown in Tech Office Leasing Mean for Tenants? #CRE #TenantTips #Office #TechSpace #TenantRep #CorporateRealEstate https://hubs.li/Q02kvfjz0

When the office sector was struggling, the tech sector represented a glimmer of hope. Massive expansion demanded appropriate (and premium) office space to satisfy the demand for rapid tech evolution and amenities that would keep top talent happy. But unfortunately, no industry has been immune to the market downturn of the last few years. Major tech forces have been cutting down on their footprints and personnel to survive the recessionary storm. But, since tech was such a premier player behind the drive for office demands, its pullback has had huge implications on the overall vacancy rates. Tech office leasing has hit a tailspin, driving property devaluations in major metropolitan hubs like New York, San Francisco, and Los Angeles. But on the upside, commercial tenants have more leverage than ever to find the perfect office space for a highly affordable price.What Does the Slowdown in Tech Office Leasing Mean for Tenants? #CRE #TenantTips #Office #TechSpace #TenantRep #CorporateRealEstate https://hubs.li/Q02mVYkQ0

[The playing field of work is the internet not the office] Here’s the brilliant Dave Cairns saying as it is… ‘….distributed by default.’ ‘…that playing field is the internet, not the office.’ ‘More leaders need to get honest about… matching what employees want and need from a workplace.’ When you sit and REALLY analyse the situation, it has hit what we used to call a 2.4 moment… THE SITUATION HAS CHANGED. So, stop trying to use your OLD MAPS… they don’t work in the NEW WORLD. TBH, they never did 🤦🏻♂️ #workplace #Culture #HybridWorking #TeamBuilding #ChangeManagement #FlexibleWorking #WorkplaceStrategy #WorkLifeBalance #VeteranOwnedBusiness #LiveWorkBetter

‘train wreck in slow motion’ Owners saddled with half-empty office buildings as hybrid work trend continues-- commercial real estate--City office buildings are in trouble---- I think we're at the beginning-- There is a potential crisis here We no longer have to live where we work--For a century, the towers have been propped up by two pillars. One, workers filling the buildings all week. Two, money flowing freely in the form of loans to borrow, buy, and build. Those days are over. As hybrid work hardens from trend to new normal, office occupancy rates have hit all-time lows--$1.5 trillion in commercial real estate loans expire in the next two years. It's enough to make you rethink the future of cities--- More than 95 million square feet of New York office space currently unoccupied -- the equivalent of 30 Empire State Buildings--higher interest rates, the changing nature of how people work and live. We're not going back to where we were. It's a different world. And it's gonna be turbulent.--return to office has stalled out: Fridays are dead. Mondays aren't much busier. As tenants shrink their office footprint, office landlords are confronting the fact that some of their buildings have become obsolete, if not worthless…reality is the price of office buildings is tanking, as much as 40% since the pandemic. Uptown at Columbia Business School, professor of real estate, has modeled out the impact of hybrid work on pricing…and calls it a train wreck in slow motion --And this is just the beginning. And the reason it's just the beginning is because there's a lot of office tenants that have not had to make an active space decision yet "Do I want to renew this space? Do I wanna vacate? Maybe I sign a new lease for half as much space" This is what tenants have been doing for the last three years. So when you take all of those current and future declines of cash flows into account, we end up with about a 40% reduction in the value of these offices commercial real estate is a huge part of the book of business of your typical bank. And I'm talking mostly about these smaller and medium size, maybe regional banks. They have a lot of exposure. That is their bread-and-butter activity. About 30% of all their loans are commercial real estate loans. And here we are, sort of seeing weakness in office that is something like-- that we have never seen before. And banks need to come to grips with that---  commercial real estate is a world built on loans, big ones…and the assumption that those loans will be refinanced, with little friction, every five to 10 years--Not anymore--The bank will look at that-- at that building and say "Well, I used to be willing to lend you $80 million against this building, but I don't think the building is worth as much anymore as it used to be. So maybe today I'm only willing to lend you $60 million against that same building" right? And now the office owner…"do I come out of pocket for that $20 million difference? Or do I walk away?"

The Manhattan office market is experiencing a resurgence after being significantly impacted by the pandemic, which led to a sharp increase in vacancy rates, peaking at over 20% in 2023. This downturn represented one of the market's lowest points, with businesses shuttering and shifting to remote work. However, a recent report from the real estate technology platform VTS indicates a strong recovery on the horizon. Demand for office space in Manhattan surged by nearly 40% in 2023, a stark contrast to the previous year, and now stands at 75% of pre-pandemic levels. This increase significantly outperforms the national average growth of 19.6% in office space demand, underscoring New York City's dominant position in the U.S. office market with its nearly half-billion square feet of office space. VTS's findings are particularly noteworthy because they predict future market movements based on current demand indicators such as lease proposals and site visits by potential tenants. According to VTS's chief strategy officer, Ryan Masiello, the platform's data suggests that New York City's total leasing activity could reach or surpass 30 million square feet this year, setting a record not seen since before the pandemic. This optimistic forecast is supported by the actual leasing activity reported by CBRE, which totaled 26 million square feet in 2023, although this was a slight decrease from 2022. The recovery is not only significant for landlords but also for a broader spectrum of stakeholders, including business advocates and the dining industry, which have faced challenges due to decreased foot traffic in business districts. The rebound in office demand signals a positive shift for the city's economy, potentially revitalizing urban centers and supporting municipal services through tax revenues generated by the financial and professional services industries. These sectors are major office tenants in Manhattan and play a crucial role in the city's economic health. The resurgence is reflected in recent high-profile lease renewals and expansions, such as Barclays Bank's renewal of its 1.1 million square feet lease and Evercore's addition of 95,000 square feet to its existing space. These transactions indicate a growing confidence among major corporations in the city's economic future and their commitment to maintaining a significant presence in Manhattan. The revitalization of the office market is a key component of New York City's broader economic recovery, highlighting the interconnectedness of various sectors and the importance of office-based industries to the urban ecosystem. #ManhattanOfficeMarket #RealEstateRebound #VTSReport #NYCLeasing #EconomicRecovery #BusinessGrowth #CommercialRealEstate #NewYorkCity #OfficeSpaceDemand #PostPandemicRecovery

🚨 Change is Inevitable, Growth is Optional 🚨 I am someone who was deeply entrenched in the tenant rep profession for nearly two decades, the last decade following my passion for the "disruption" underway in office space - Yes, even before the pandemic I admittedly can be triggered by how slowly my legacy colleagues are adapting to the changes upon us. Recently, I stumbled upon a blog post I penned in January 2021 during my tenure as Flexible Solutions leader at Avison Young (Link in Comments). It was a rallying cry for brokers to embrace change, adapt to new technologies, and anticipate shifts in client preferences. Yet, here we are, with change still looming large, and many in the industry seemingly resistant to its winds. And Just today, I came across a post from a respected leasing professional, albeit one I found misinformed about the strides made in PropTech and flexible office solutions which triggered me. So, here's a midweek message to all professional service providers in the real estate realm - be it Agency & Tenant Rep brokers, A&D, construction firms, or furniture suppliers: Embrace Flexibility 🔄 Flexibility isn't just a buzzword; it's the cornerstone of success in the dynamic office market. Understand and cater to the evolving needs and preferences of your clients in this post-pandemic era. Leverage Technology 💻 Technology isn't just a tool; it's a game-changer. Embrace innovative platforms and services to streamline transactions and prioritize client satisfaction over commissions and legacy processes. Don't be afraid of them - Learn about them, Engage with them, Leverage them! Adapt to Market Changes 📈 The market isn't static, and neither should your strategies be. Stay abreast of trends, pivot when necessary, and remain competitive by aligning with client demands. Traditional leasing isn't disappearing, but its dominance is waning. We've reached a plateau in office space utilization, and occupiers are increasingly seeking flexible solutions. A majority of occupiers are either Hybrid or Remote First which means less long term space is needed. It's time to acknowledge this reality and adapt accordingly. To my legacy peers: Arm yourselves with knowledge, embrace change, or risk being left behind. The future of office spaces belongs to those willing to evolve with the times. To the owner & occupier community: There is no one size fits all product/solution to satisfy your portfolio/asset management strategy needs. Education is paramount and opportunity exists (Operationally and Financially) for those willing to look beyond the status quo Let's usher in a new era of office spaces, driven by innovation, flexibility, and forward-thinking strategies. Together, let's seize the opportunities that change presents and chart a course towards growth and success. #CREvolve #EmbracingChange #ChallengeTheStatusQuo**