Uncertain Times for the Office Space Market

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Things are changing daily, creating uncertain times for the office space market for one thing. The first quarter of 2020 showed a distinct slow down in new builds in the office sector. A mere 4.7 million square feet was under construction at that time.

Roughly 30% of office space under construction is pre-leased, leaving over 3 million square feet of space that will become available soon. Local brokerage firms are all reporting that net leasing is down. And in the midst of this pandemic, very few leases are getting done.

Needs will change

Many experts believe that the overall use of office space will look very different in the coming months. According to Peter Linneman of Linneman & Associates, the concepts of companies like WeWork may be a thing of the past. He said of the flexible workspace company “they will no longer be the darling of the day”

For one thing, the idea of one big open space with workers packed in at community tables just isn’t going to work in the post Covid-19 world. We are going to need workers to be further apart in order to provide a safe working environment.

Changing Office Needs in uncertain times

For another, employers may discover that workers are more productive when they aren’t surrounded by the distractions that occur when working in such close proximity. The result of their employees working at home for 6 to 8 weeks.

The Linneman weekly “Thoughts on the Economic Impact of Covid-19” YouTube audio discusses this in his April 2 session. This address is well worth the time to listen. His thoughts on tightly packed “hot seats” come in at about the 15-minute mark on the recording. He also discusses several cognitive studies that have been done showing that this type of environment, while saving on rent costs, suffers in productivity.

In the JLL report, the author states ” The trajectory of the market will be shaped not only by the ability of policymakers and the private sector to manage the ongoing crisis but also by the potential emergence of structural changes to how space is used.”

In the course of conversation with one of our clients who owns several office buildings, they are seeing requests from current tenants for more office space, not less. The tenants want the extra space so they can reconfigure large open communal work spaces into individual offices to support social distancing.

The Future Outlook

A report by Cresa shows the overall leasing rate for the DFW area at $27.87 psf. They also show an overall vacancy rate of 16.1%. Hopefully, the tenants will come to fill those spaces.

As companies navigate the new normal for the workforce, one thing is certain. It will be different than it was before Covid-19.

The Kurz Group team is here to help you navigate through these uncertain times. Contact us with your commercial property tax questions.

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