{"id":1004494828,"date":"2020-11-24T06:20:18","date_gmt":"2020-11-24T14:20:18","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004494828"},"modified":"2020-11-24T11:16:42","modified_gmt":"2020-11-24T19:16:42","slug":"office-leasing-trends-in-uncertain-times","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/office-leasing-trends-in-uncertain-times\/","title":{"rendered":"Office Leasing Trends in Uncertain Times"},"content":{"rendered":"
\"Office

Spokane 1997 via Pixabay<\/p><\/div>\n

There are many unanswered questions about the future of the office sector. Landlords and tenants don\u2019t know the full extent of how working remotely will reshape the future office or how social distancing and a focus on sanitation will change the nature of work. The uncertainty is unsettling, but office leasing trends are surprisingly stable for now.<\/p>\n

Despite these challenges, business continues to march forward with tenants still looking to lease space. <\/p>\n

\u201cDemand for our services is at an all-time high,\u201d noted Chris White, vice chairman & Southeast region lead for tenant representation specialist Savills, noting that tenants want \u201cflexibility, flexibility and more flexibility.\u201d<\/p>\n

Traditionally, landlords would push long leases that placed the burden of risk on the tenant. But White is seeing pushback from his clients who want office space but want to be agile enough to figure out what the future is going to look like.  <\/p>\n

Office occupiers, therefore, have been taking a wait-and-see approach to their long-term planning. Rebecca Rockey, global head of forecasting for Cushman & Wakefield, observes that most companies’ \u201cfocus is on getting through the pandemic and the related business cycle more so than changing their real estate strategy.”<\/p>\n

“What we see in the market is a desire to do a near-term extension to get to the other side so they can figure out what their new normal is,\u201d he said.<\/p>\n

Asking rents hold<\/strong><\/h2>\n

Along with a significant drop in office leasing activity, Rockey has observed record levels of negative absorption. \u201cOur national data on office demand has registered some of the most significant declines ever recorded,” she said. “So far, we\u2019ve had in Q2 and Q3 combined negative 64 million square feet of absorption. In Q3 alone, it was about 42 million to 43 million square feet in negative absorption, and that\u2019s far and away the single-largest quarterly drop we\u2019ve ever recorded.\u201d<\/p>\n

That negative absorption has yet to be reflected in asking rates, but Rockey thinks that this is to be expected. \u201cIn the great financial crisis, it wasn\u2019t until the end of 2008, well into our experience of negative absorption, before asking rents started to move.\u201d<\/p>\n

Landlords have had little opportunity to adjust given the lack of current activity. \u201cGenerally speaking, asking rates are holding up in most markets,” Rockey said. “Nationally, we saw another quarter where our rents increased.\u201d<\/p>\n

In recent years, there has been a strong trend to increase employee density. Part of this is financially motivated, but it has also been driven by the social trend of creating more collaborative workspaces. In the wake of COVID-19, people are far more wary of working in close proximity to their coworkers. White believes that the solution may not require additional square footage.<\/p>\n

\u201cMost companies are set up that every desk, every office, every workstation is assigned to one person … A lot of our clients are asking, ‘what if that desk was used by 1.5 people or two people?\u2019\u201d<\/p>\n

Some speculate that companies may want to expand their floorplans to accommodate social distancing. Savills’ White is not as certain: \u201cThere has been a lot of talk of that, but actually doing it is another thing. They are debating that and trying to give themselves as much time as possible \u2026 People are trying to wait as long as they can to figure out what the new normal is.\u201d<\/p>\n

Construction pipeline clogs<\/h2>\n
\"Office

Source: CommercialEdge as of October 2020.<\/em> Data excludes owner-occupied buildings.<\/p><\/div>\n

Industry professionals are busy innovating creative solutions to reduce office density. According to White, they\u2019ve had to determine how to make workspaces more flexible.<\/p>\n

That demand has also been noticed by Rockey. \u201cThere seems to be an appetite to use near-term strategies such as rotating shifts, staggered hours, and increased working from home,\u201d she said.<\/p>\n

RCLCO Senior Managing Director Taylor Mammen believes that so far office has been affected only minimally thanks to long office leases. “The data doesn\u2019t necessarily show a great deal of decline in operating fundamentals,\u201d he said.<\/p>\n

While direct asking rents have not changed much, many investors see the increase in sublease space as a potential sign of weakness.<\/p>\n

\u201c(This) is always something that occurs during an economic downturn and doesn\u2019t necessarily suggest a difference in how companies are planning to use office space,” said Mammen. “It certainly is a reflection of economic weakness but not necessarily yet an indicator that all companies are rethinking how they are going to use office space going forward.\u201d<\/p>\n

The construction pipeline has mostly stalled. As with most sectors, projects that had already broken ground are still being built; however, projects further back in the pipeline have been indefinitely delayed.<\/p>\n

\u201cIt\u2019s going to be a while before we see a lot of new office construction,\u201d said Mammen. \u201cThere is likely to be a glut of what I describe as commodity office space. Office space that is indistinguishable from other office space.\u201d<\/p>\n

If Mammen is correct, much of that commodity office space could undergo adaptive reuse, converting into medical or other specialty office space. It could also potentially be repurposed as multifamily.<\/p>\n

Mammen has seen very little transaction activity with RCLCO clients. \u201cSellers are taking a wait-and-see approach, and I think buyers are, too. Lenders are very hesitant to lend on office space, as well.\u201d<\/p>\n

This transaction slump is likely to continue until a medical solution to the current health crisis is implemented.<\/p>\n

Businesses have been operating in offices for over three centuries, so it will almost certainly come back; however, the timing is unclear. In the meantime, commercial tenants watching the space are holding back on making big moves. Being too early on this trend could be a mistake.<\/p>\n","protected":false},"excerpt":{"rendered":"

Is the increase in sublease space a sign of an economic slump or a harbinger of diminished office use in the future? <\/p>\n","protected":false},"author":892,"featured_media":1004494831,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21784,23891,21742,21747],"tags":[],"class_list":["post-1004494828","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-brokerage","category-national","category-latest","category-office"],"acf":[],"yoast_head":"\nOffice Leasing Trends in Uncertain Times - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/office-leasing-trends-in-uncertain-times\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Office Leasing Trends in Uncertain Times\" \/>\n<meta property=\"og:description\" content=\"Is the increase in sublease space a sign of an economic slump or a harbinger of diminished office use in the future?\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/office-leasing-trends-in-uncertain-times\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2020-11-24T14:20:18+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2020-11-24T19:16:42+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2020\/11\/office-space-1988480_1280.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"800\" \/>\n\t<meta property=\"og:image:height\" content=\"620\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Andrew Kern\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/office-leasing-trends-in-uncertain-times\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/office-leasing-trends-in-uncertain-times\/\",\"name\":\"Office Leasing Trends in Uncertain Times - 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