Q2 2020 Office Market Insights
Covid's effect on Office Space
There is no doubt, COVID-19 has been a shock to public health and the economy. As the toll of new cases subsides on some states and increases in others, it is becoming clear that “normal life” is becoming something different. Changes in work routines during the coronavirus may become permanent.
In the short term, national office building restaurants, coffee bars and exercise areas have closed. We have all experienced challenges related to conference room activities, staff meetings and large gatherings. It is likely these will become a hybrid experience where some participants will attend in person while others make a virtual appearance.
Schools and Universities are met with the challenge of attending in person, attend a portion of the week, on-line instruction, or a hybrid of all of these. Employers are making the same offerings to their employees.
Nationwide, the office was the third hardest-hit property category behind hospitality and retail. In the long term, reduced demand for space will come from 1) less growth in the employment categories that generate office demand 2) companies having fewer employees at the office while some work for home and 3) demand for common area spaces will drop off. Offsetting the reduction of common area spaces like staff lunchrooms and exercise areas, there is also a need for companies to increase the square footage per employee for proper social distancing.
We will not see the impact of these changes until Tenants’ leases come up for renewal. Most office Tenants are somewhere in the middle of their five-year lease terms. At the expiration or renewal of these lease terms, Landlords will begin to feel the size adjustment impact. In the meantime, markets like Phoenix and Dallas are seeing an uptick in sublease space available on the market.
Closer to home, we will not see a great impact of change in the size of office space. The larger metropolitan areas will be closing headquarter offices while opening several, smaller suburban office locations creating shorter commutes for their employees. Employee schedules will be a hybrid of in-office and at-home production. Because Albuquerque enjoys short commute times, we likely will not see as great of an impact on the downsize of office space as the larger metropolitan areas.
Additionally, most office Tenants in the Albuquerque metropolitan area have managed to make their lease payments. As I converse with Landlords citywide, most have indicated only one or two Tenants have asked for rental forgiveness. We are one of few cities nationwide who can boast this statistic. This has resulted in national employers taking a second look at locating their offices in our great City.
by Shelly Branscom, CCIM
Shelly Branscom, CCIM is an NAI Maestas & Ward commercial real estate specialist that provides substantial long term strategies and business planning services to her clients. She prides herself on thinking outside the box, enabling her to contribute unique solutions and outcomes specific to each of her clients. Learn more about Shelly and her listings.
National Perspectives on the Office Sector:
Reopening the Economy, Commercial Real Estate Market Update, Summer 2020 by The Linneman Letter
Will Remote Work Make CRE Office Space Less in Demand? by NAI Global Newslink
The Work from Home Revolution: Implications for the Office Sector by Green Street Advisors
Despite the success of home working, offices still provide a vital role in culture, community and connection by Savills
Will Teleworking Change the Future of the Office? by Shawn Moura, Ph.D, Trey Barrineau, NAIOP Development - Summer 2020 Issue