Office Space After COVID-19
The way office space looks after COVID-19 is one of the big unknowns of the pandemic. There are lots of opinions, but let’s be honest. No one knows for sure what the fate of the traditional office building will look like a year from now.
We have all had to shift the way we think about work. For many, we proved that working remotely is possible. For some, they are more productive when working in isolation with fewer watercooler distractions. For others, it’s tough. Kids, spouses, and pets are underfoot, distractions abound.
At the office, we had large desks with dual monitors. We had big whiteboards for brain-storming. At home, many of us on on the sofa with a laptop.
Stream Realty Partners recently released a comprehensive report in which they compiled data looking at office space beginning in the 1980s through 2019. They looked at where office space was, where it is now, and where it might be headed. The 52-page report is well worth the time to read it.
Chase Lopez of Stream Realty Partners spoke with the Dallas Business Journal about the report. “The big takeaway here was just how historic the last bull market cycle that we just came out of was, or how historic the last decade’s performance was relative to previous decades,” said Lopez. “I think the 2010s performance really has proven that Dallas has the potential to be a gateway market, a place where you can invest capital and continue to see appreciation.”
Return to the Office
Commercial real estate expert Stephen LaMure works in Dallas’s design district. He believes only 20 percent of the workforce has returned to their offices in that area of the metroplex. He spoke with Channel 5 a few weeks ago. He believes that when we do return to the office, tenants will want more space, not less. They will need to re-configure to allow more space between employees in order to keep everyone safe.
Lamure stated that he had interviewed over 100 tenants in the last 90 days and almost all of them need more space. He does not believe that COVID-19 means the end of the office space as we know it.
The CDC has recently issued guidelines for a return to office work.
The Office Market
When asked about the possibility of distressed properties hitting the market, Alvarado told the Dallas Business Journal that a lot of what is currently in the market is being driven by lenders and special servicers.
Unlike the crash in 2008, there is not going to a great flood of distressed assets hitting the market. But, there will be “deals of a lifetime”. Alvarado doesn’t think we will see these properties hitting the market until the end of the first quarter or possibly the beginning of the second quarter.
He believes there will be a few deals close as much as 50-60 percent below what the previous ownership groups might have paid. But, it won’t happen often in the market. And it will be an even rarer occurrence in the Texas markets. According the Alvarado; “We do expect to see a handful of those opportunities in Dallas. We expect to see a more meaningful number in Houston and we really expect to see very limited to no opportunities like that in Austin.”
Steve Brown of the Dallas Morning News believes that rents will be declining and there will be more giveaways by landlords. According to Brown, more than half of property company professionals said they expect lower office rents. 77% of the executives polled said they expect more lease concessions as landlords try to lure tenants to buildings.
Office Space After COVID-19
The bottom line? No one really knows what office space will look like after COVID-19. Everyone will be figuring it out as we go. While no one seems to think office space will be a thing of the past, most believe it will look different.
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