In these America’s Commercial Real Estate Show videos, Phil Mobley, National Director Office Analytics at CoStar Group, provides an office market update, then offers his thoughts on the office market moving forward to 2023 and 24. The office market update is particularly interesting given that the COVID-19 experience has largely been put behind us. Discussions include office property vacancies, rental and absorption rates, and leasing and sales volume for office buildings. Miami’s standout performance of course gets a mention; how could it not?
More on the conversation: Navigating the Office Market; Trends, Challenges, and Opportunities
*In a recent conversation with industry expert Chase, the state of the office market was discussed, shedding light on various trends, challenges, and potential opportunities. The dialogue touched upon the impact of expectations for a recession, changing dynamics between suburban and CBD markets, and the nuanced factors influencing rental rates.*
Reaction to Recession Expectations: Cutting Costs and Structural Changes
Amidst expectations for an economic downturn, companies are reacting by cutting costs. The conversation emphasized a reluctance to let go of acquired talent, leading to an exploration of alternative cost-trimming measures, such as reducing office space. The structural and cyclical impacts of these changes make it challenging to predict their outcomes. The sublease availability emerged as a key indicator of the structural shifts in the market.
Suburban vs. CBD Office Property Dynamics: The Rise of Micro Urban Spaces
The discussion delved into the evolving dynamics between suburban and central business district (CBD) markets. The emergence of “micro urban” spaces, combining the connectivity of CBDs with the proximity to residential areas like suburbs, was highlighted. The preference for newer constructions and the trend of flight to quality, based on recency of construction, showcased how tenants prioritize amenities, air quality, and overall office experience.
Office Property Rental Rates and Concessions: Bifurcation in the Market
Analysis of rental rates revealed a bifurcation in the market. While there is slow growth in asking rates overall, concessions packages have become richer, affecting net effective rents. Trophy new vintage properties seem to experience positive rent growth, while older buildings face challenges. The discussion touched on the attractiveness of the current market for occupiers seeking favorable lease deals.
Cap Rates and Sales Volume for Office Properties: A Slowdown in Q4
Shifting to the realm of cap rates and sales volume, the conversation acknowledged a notable slowdown in Q4 sales volume, reaching the lowest for a fourth quarter since 2009. Lenders are cautious, widening the bid-ask spread, making it challenging to close deals. The discussion emphasized the importance of understanding trends in actual cap rates, particularly in the context of individual deals.
Future Opportunities: Secondary and Tertiary Markets, Talent Retention, and Micro Urban Developments
Looking ahead, potential opportunities lie in secondary and tertiary markets, including Austin, San Jose, Northwest Arkansas, Provo, Utah, Charlotte, and others. The importance of talent retention became a focal point, suggesting that workplaces with higher employee retention might be better for the overall economy and the office market. Micro urban developments that blend suburban living with CBD-like amenities were identified as areas of interest.
Conclusion: Adapting to a Shifting Landscape
The nuanced conversation with Phil provided valuable insights into the complex landscape of the office market. As companies navigate through uncertainties, the market’s response to economic shifts, changing dynamics, and emerging opportunities will shape the future of office spaces. The ability to adapt to these changes and find a balance between cost-cutting measures and talent retention will be crucial for both occupiers and investors in the evolving office market. The upcoming months are likely to witness how these trends unfold and reshape the commercial real estate landscape.
It’s important to note that while the discussion provides a national perspective on commercial office real estate, specific market conditions, such as those in Miami, may exhibit variations where certain elements discussed could apply differently or even not at all for the Miami / South Florida office property sector.
Related Destinations:
- Video: Office Market Forecast with Moody’s Analytics’ Thomas LaSalvia, PhD
- Video: MSCI & Real Capital Analytics Chief Economist Provide Office Sector Update
- Video: CCIM Chief Economist K.C. Conway on Trends in Office Use & Values; highlights Miami at 23:50
- Miami Office Condo Listings
- Miami Office Property Listings