Category: Office Markets

Office Markets Stabilize as More Companies Mandate In-Person Work

Posted on by Abigail Grenadier

After years of acquiescing to remote and hybrid work arrangements, major companies are reversing course, a positive sign for demand for office space and the continued recovery of America’s downtowns and city centers.

Office Leasing Gains Traction

  • Office leasing demand has seen a noticeable uptick, partially thanks to broader factors such as greater economic stability and a stronger push from companies for employees to return to the office. (The Business Journal, Oct. 14)
  • Amazon and HSBC lead the charge: Amazon has ordered corporate staff back five days a week and is searching for more office space in Manhattan. HSBC Bank increased its U.S. headquarters space by 35,000 square feet after attendance rose to 80%. (WSJ, Oct. 29)
  • Dell Technologies and 3M are also tightening in-office requirements, with Dell mandating full-time office work for its global sales teams, and 3M seeking higher attendance from senior employees. (Bloomberg, Oct. 21)
  • More firms requiring in-office presence: The proportion of firms requiring employees in-office five days a week rose to 33% in Q3, up from 31% in Q2, according to Flex Index, which tracks workplace strategies. (WSJ, Oct. 29)
  • Tech sector demand surges: Over the past twelve months, demand for office space has surged in tech-centric cities such as Seattle, Boston, and San Francisco, as tech employers revisit their office needs and reconsider remote work policies. (VTO News Release, Oct. 30)

Vacancy Rates Show Signs of Stabilizing

  • Vacancy rates show signs of stabilization: The vacancy rate is stabilizing at a near-record level of 13.8%, up from 9.4% in the fourth quarter of 2019.
  • Since the second quarter of 2020, U.S. office tenants have vacated close to 209 million square feet of space, the highest amount ever for a four-and-half-year period, according to data firm CoStar Group. (WSJ, Oct. 29)
  • Although vacancy rates remain a concern, leasing activity is up in major cities across the US, such as New York City, Washington, D.C., Boston, and San Francisco. (Roundtable Weekly, Oct. 18)
  • The 46th edition of PwC and the Urban Land Institute’s Emerging Trends in Real Estate report released this week, depicts the commercial real estate industry as gradually returning to normalcy after the significant disruptions caused by the pandemic. “Investors’ focus is shifting back to the typical cyclical changes that occur throughout business cycles,” the report noted. (GlobeSt. Nov. 1 | Report, Oct. 29)

The Roundtable’s Q4 2024 Sentiment Survey which measures senior executives’ confidence and expectations about the commercial real estate market environment will be available next week.

Back to the Office: Vacancies Ease, Optimism Grows

Posted on by Abigail Grenadier

Office vacancy rates are beginning to show signs of easing as companies ramp up efforts to bring employees back to the office, fueling optimism across commercial real estate. The office sector also saw key highlights in property conversions and sustainability efforts this week.

Driving Factors

  • Office leasing demand has seen a noticeable uptick, partially thanks to broader factors such as greater economic stability and a stronger push from companies for employees to return to the office. (The Business Journal, Oct. 14)
  • A mix of lower office vacancy rates and high-profile return-to-office mandates, like Amazon’s, could help stabilize a sector still grappling with the remote work shift. (Roundtable Weekly, Sept. 20)

Market Sentiment

  • Although vacancy rates remain a concern, leasing activity is up in major cities across the US, such as New York City, Washington, D.C., Boston, and San Francisco. (Boston RE Times, Oct. 4; GlobeSt., Oct. 14; SF Examiner, Oct. 15 | Bisnow, Oct. 16)
  • As reported in our Q3 2024 Sentiment Index, which measures commercial real estate executives’ confidence and expectations about the industry environment, there is growing confidence in the future of the commercial real estate market despite ongoing challenges. (Roundtable Weekly, Sept. 6)
  • The Roundtable’s Q4 Sentiment Index survey is currently underway and expected to be released in early November.
  • Additionally, JLL’s latest Global Future of Work survey found that organizations are “planning to increase and rebalance organizational headcount in the coming years and many are ready to invest into their real estate, expecting to increase budget and footprint.”
  • Over 60% of survey respondents anticipate increased workplace utilization in the next five years, prioritizing more efficient and responsible use of real estate assets. (JLL Survey 2024)

Property Conversions

Construction skyline
  • Office-to-residential conversions are gaining traction as a solution to address high vacancy rates and housing shortages.
  • In 2024, the number of office spaces being converted into apartments increased to 55,000, a staggering 357% jump from 2021, according to data from Yardi Matrix. (New York Post, Oct. 14)
  • Property conversions can be a cost-effective means to re-purpose assets, provide new, affordable housing, revive struggling city centers and small businesses, restore local revenue sources, and reduce energy consumption. (Roundtable Weekly, Oct. 4)

Sustainable Innovation

  • Investments in sustainability efforts also reflect growing confidence in the industry rebound and stability heading into 2025.
  • “The Federal Buy Clean Initiative, and BXP’s aligned construction specifications, send a strong demand signal to concrete producers that helps drive market transformation,” said Ben Myers, Co-Vice Chair of the Roundtable’s Sustainability Policy Advisory Committee (Senior Vice President, BXP). “As an active developer, we are interested in cost-effective methods of supply chain engagement to create more sustainable outcomes.”

The Roundtable continues to advocate for energy-efficient solutions, supporting property conversions and innovative building methods that align with the evolving needs of modern offices. These efforts are essential to creating sustainable workspaces and revitalizing cities.

Industry Leaders Discuss Office Market Pressures, Challenges, Opportunities

Posted on by Abigail Grenadier
Aerial Point of View of Downtown Nashville, Tennessee

The ramifications of declining values for certain office properties were the focus of several national media interviews this week with industry leaders. The pressures, challenges, and opportunities of the current office market are the consequence of remote work and a post-pandemic shift in the use of the built environment—realities that are leading city officials to assess lower tax revenue assessments and consider policy changes to incentivize commercial-to-residential conversions, cutbacks to local services, or raising taxes. (New York Times, March 14)

Office Conversions

• Roundtable Chairman Emeritus Bill Rudin (Co-Chairman and CEO, Rudin Management Co.)
  • The New York Times reported this week on the options facing municipal officials as nearly $3 trillion of outstanding commercial real estate debt is coming due by 2028 while tax revenue from commercial properties drops. Refinancing certain office assets at reduced values remains difficult during a period of high interest rates and heightened regulatory concern about regional banks’ office loan concentrations. (Trepp, Dec. 21, 2023 and Roundtable Weekly, March 8)
  • Rudin offered examples in New York City of successful office reuse. He also emphasized how other cities need to convert obsolete office buildings to residential use by changing multiple dwelling laws, zoning statutes, and a providing a robust tax abatement to incentivize capital into the marketplace for conversions.  
  • “It’s a public-private partnership. The capital will come to those projects with the right structure that start creating housing on all levels: affordable, workforce, market rate,” Rudin said.

Evolving Opportunities

Real Estate Roundtable Member Hessam Nadji (President and CEO, Marcus & Millichap)
  • Roundtable Member Hessam Nadji (President and CEO, Marcus & Millichap) spoke with CNBC’s Worldwide Exchange today about the bifurcated office market. He added that investors are exploring opportunities in shopping centers and high-quality offices in suburban markets.
  • “(We are) hearing from various institutional investors that it’s the time to buy. Prices have adjusted. There’s record capital on the sidelines. And when you combine those two with confidence that the economy is going to hold up pretty well, you’re going to see capital come back,” Nadji said.
  • Blackstone President and Chief Operating Officer Jon Gray discussed investor opportunities in commercial real estate yesterday with Bloomberg Television.
  • “As investors, sometimes, one of the risks is that you miss it by being overly cautious and I think now is probably a good time before rates come down. There are definitely assets that were financed in a different era, particularly in commercial real estate because there has been a more profound impact in the office sector—and that will create opportunities,” Gray said.

On the public buildings front, the Biden administration’s 2025 budget plan proposes $425 million for the General Services Administration to reduce the federal footprint and long-term costs through a new “optimization program.” (Federal News Network, March 11)

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