{"id":1004713452,"date":"2024-05-28T00:17:24","date_gmt":"2024-05-28T08:17:24","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004713452"},"modified":"2024-05-29T01:03:35","modified_gmt":"2024-05-29T09:03:35","slug":"quality-is-the-future-of-office-says-kbs-executive","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/quality-is-the-future-of-office-says-kbs-executive\/","title":{"rendered":"Quality Is the Future of Office, Says KBS Executive"},"content":{"rendered":"
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\"KBS
For Cordoves, a full return to office isn\u2019t necessarily the key to future success in the office sector. Image courtesy of KBS<\/em><\/figcaption><\/figure><\/div>\n\n\n

The U.S. office sector is still in recovery mode. A recent Commercial Edge report found that the office construction pipeline has decreased by almost 40 percent in the last two years, and the trend will likely continue due to lending difficulties, high construction costs and low demand. Vacancy is still on the rise<\/a> in many markets, with the national rate reaching 18.2 percent at the end of March, the same source shows.<\/p>\n\n\n\n

Nevertheless, hybrid schedules<\/a> that offer employees more flexibility and access to popular amenities are bringing some office users back, particularly at Class A office buildings. The flight-to-quality trend continues to play out across the country, shaping the future of the office<\/a> sector. How are U.S. investors and landlords responding? We asked Giovanni Cordoves, regional president, Western region at KBS, to weigh in.<\/p>\n\n\n\n

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READ ALSO:<\/strong> How Flight-to-Quality Is Leading the Flex Office Evolution<\/a><\/p>\n\n\n\n

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How would you describe the U.S. office market today, more than four years after the event that shook it to its core?<\/strong><\/p>\n\n\n\n

Cordoves:<\/strong> The recovery of the U.S. office market has become incredibly complex. Performance varies greatly depending on the region, submarket, city and office building class. Higher interest rates have impacted pretty much all commercial real estate, office properties included, and now contribute toward significant refinancing challenges. For the most part, Class A buildings continue to lease well and experience higher office occupancy than their inferior counterparts, likely due to a consistent trend among tenants seeking high-quality, well located and well amenitized buildings.<\/p>\n\n\n\n

The amount of capital on the sidelines continues to rise as many are waiting for interest rate cuts and to figure out where prices will settle before they make their next move. Owners continue to weather the storm until they can secure refinancing at more favorable rates. However, some are choosing to exit the market, either by relinquishing their properties or seeking buyers, even if it means selling at a loss.<\/p>\n\n\n\n

To what extent has the office sector in gateway markets recalibrated? How much has office vacancy rebounded in large U.S. markets since the peak of the health crisis?<\/strong><\/p>\n\n\n\n

Cordoves:<\/strong> Large U.S. markets continue to lag behind gateway markets in office vacancy likely due to regional responses during the health crisis. However, most employers are still seeking office space that aligns with the evolving landscape of the workplace, including hybrid and work-from-home setups. <\/p>\n\n\n\n

Markets in Sun Belt states continue to lead the way in workers returning to the office full time, and this highlights the clear market-led bifurcation<\/a> that exists in those markets and major urban areas such as San Francisco and New York City\u2014even among those gateway markets, the return to anything resembling pre-pandemic normalcy varies widely. That said, office occupancy during the mid-week particularly\u2014Tuesday, Wednesday, Thursday\u2014is consistently climbing nationally, which emphasizes the need for office space. Whether that\u2019s leasing new space, renewing current leases or, in many cases, renovating and expanding it to accommodate the evolving needs of employees.<\/p>\n\n\n

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\"Sterling
Sterling Plaza in Dallas was 97 percent leased at the end of last year. Image courtesy of KBS<\/em><\/figcaption><\/figure><\/div>\n\n\n

Are there any particular trends in the office sector that are visible across the entire country?<\/strong><\/p>\n\n\n\n

Cordoves:<\/strong> In today’s market, attracting and retaining tenants hinges on creating exceptionally tenant-friendly environments. <\/p>\n\n\n\n

We pride ourselves on providing a unique amenity package at each property … We’ve integrated a number of creative outdoor spaces that seamlessly integrate with indoor amenities, also adding retail and dining venues, gyms, conference facilities, and tenant lounges into numerous assets across the U.S. From visible amenities like those mentioned, to behind-the-scenes features such as smart office technology, digital connectivity and top-of-the-line HVAC systems, many of these enhancements are no longer mere luxuries but have become expectations to tenants.<\/p>\n\n\n\n

But despite all these efforts, office use in the U.S. is spotty and dependent on a variety of factors, including regional characteristics or the major industries present in each metro. Which office markets are performing well today and why?<\/strong><\/p>\n\n\n\n

Cordoves:<\/strong> Market-specific factors contribute to how success is defined among office properties. According to Brookfield, 90 percent of all U.S. office vacancies are contained in the bottom 30 percent of buildings, largely characterized by older offices with limited amenities and reduced functionality. By contrast, the top quartile of office buildings are experiencing record-high rents and stable vacancy rates.<\/p>\n\n\n\n

For example, in Chicago, where office vacancy sits at 24 percent according to a Colliers report, leasing activity at trophy and Class A buildings is still active. At KBS\u2019 mixed-use property Accenture Tower, we have achieved leasing momentum that is higher than it was pre-pandemic and the 1.4 million-square-foot property is now nearly 100 percent leased. The leasing velocity at the building can be attributed to the multimillion-dollar renovation we completed during the pandemic, with improvements to the tenant lounge, retail, dining, and adding health and wellness amenities. The property is home to hundreds of employees and thousands of daily commuters, thanks to its immediate access to transit via rail and elevated train, making commuting easy.<\/p>\n\n\n\n