News feed - All OFFICE

It has being difficult to cut through so many articles and try to figure out which are real and which are broker driven.  I've yet to meet a broker who does not exude irrational exuberance.  It could be the worst day of their lives and they still manage smiles on their faces.  They live in an echo chamber which drives me bananas. Many of the leading trade magazines simply do not do enough work to confirm what they are saying and believe this to be the gospel.  There's also such a bifurcation of real estate within the United States, that if you were to believe everything you read one would think that property market is an absolutely perfect investment tool.


There is no doubt some sectors are really going well, but I was with a client recently who simply cannot pay himself.  He is buried under real estate taxes, maintenance costs and just not enough rent to cover al his fixed and variable costs.  This is so much more common than one thinks.  Controlling the narrative is so important, and it looks like this is getting away from reality to what people really want us to hear and see.  

Estimating Future Demand for Office Space: It's Complicated.

Property Owners Have Much to Consider As Employers Rethink Their Workspace 

By: Tal Peri                                                                  April 2, 2021                                            CoStar - Commentary

JSO Comment:     It is my opinion that this is somewhat temporary.  Not that may be my age, but I am not sure I can completely put it down to that. The article points out that there are three employee issues - 1) potential cost savings, 2) higher employee satisfaction and 3)talent retention (Para #8)     The McKinsey report summation is an eye opener bolstering my believe that this is somewhat temporary.  


The COVID-19 pandemic has forced companies around the world to engage in the largest global work-from-home (WFH) effort in modern history. While productivity has been generally better than anticipated, remote work — which in the early months of the pandemic was overwhelmingly praised — is emerging as an imperfect substitute for time in the office, and its attributes and detriments are now being assessed in a more balanced way. 

A consensus seems to be forming that, in the aggregate, WFH policies will be adopted by more employers going forward. However, the office will remain critical in a hybrid work model. In other words, the vast majority of office-using employers don’t plan to adopt an all-or-nothing approach to WFH, but rather seek some balance between time spent working at home and in the office.

Remote Work Adoption Before and After the Pandemic


To address these issues, it is prudent to establish a pre-quarantine baseline relating to remote work.

Benchmarking. It is important to recognize that many employees had been working from home in some capacity for a decade or more prior to the pandemic, so the pandemic-induced WFH period did not start from zero days of WFH in March 2020. 

Additionally, neither the average, nor the peak, of office utilization was at 100% when the world went into lockdown. Many office desks and workstations were empty because individuals were on business travel or using sick days, vacation days and paid holidays.

Employer and employee factors. A wide range of factors will influence the long-term adoption of remote work after the pandemic.

Employers will have to balance the positive aspects of WFH policies (e.g., potential cost savings, higher employee satisfaction and talent retention) with the negative aspects such as potential loss of productivity and innovation, erosion of company culture and loyalty.

The same applies for employees. They will have to calibrate their desire for better work-life balance, less commute time and a more flexible work schedule, with the potential for less engagement with colleagues and superiors, which could lead to lower performance, fewer opportunities for client generation and fewer promotions.

Post-Pandemic WFH Adoption. A number of studies released over the past year provide insight into WFH’s potential long-term outlook. For example, a McKinsey study argues that the potential for remote work is determined by tasks and activities, not occupiers. It focused its analysis on identifying tasks that can be performed remotely without loss of productivity. Many other reports written by organizations such as CBRE, JLL, PWC, Colliers, Morgan Stanley, Gensler and others, are based on surveys of employers and employees to identify the pre- and post-pandemic WFH prevalence. These studies reveal differences between employers’ preferences and employees’ desires for remote work.

Additionally, these studies indicate that employee WFH preferences vary significantly by age group, marital and family status, demographic background, commute time and general living conditions (e.g., a large house versus a shared apartment). These surveys are somewhat subjective (by definition they are self-reported) and show how enthusiasm for WFH days declined as the pandemic wore on. While cost-saving measures such as leasing less space may be more appealing to employers during a recession; some medium-term WFH adoption may moderate in the long-term as companies once again begin to spend and invest.


The WFH Impact on Office Demand


While the impact on office demand will vary between urban and suburban settings, as well as between primary, secondary and tertiary markets, this series will focus on analyzing office demand in the aggregate. When projecting future office demand, it is challenging to separate the WFH dynamic from other forces impacting occupancy in buildings, such as those mentioned below. Despite the difficulties, some prominent studies are aiming to do that.

Historical data. A report from Cushman & Wakefield and The George Washington University determined the office demand decrease that would have occurred from 2017 to 2019 if more employers had implemented WFH policies during that time. By examining historical data first, they eliminated some variables or unknowns that would complicate future office demand projections, such as an increase in office-using jobs as the recession subsides and a decline in office construction.

Active management of remote work policies. The Cushman and GWU report also analyzed the effects of unmanaged remote work policies. It found that some remote work policies are so flexible that employees are not required to plan ahead or be consistent about the number or specific days of the week they will work remotely. This means the chances of two or more coworkers just happening to be in the office on the same day diminishes significantly.

Companies that value the positive aspects of spontaneous face-to-face interactions that lead to innovation, creativity and reinforcement of company culture will therefore have to actively manage employees working in hybrid office arrangements. And the more days all employees are required to be in the office at the same time, the higher the number of days the office will reach peak occupancy. For example, a company requiring all employees to be in the office every Tuesday, may function optimally with a combination of dedicated and shared workspaces, finding that sharing tight quarters one day each week does not materially affect productivity.

However, a company that requires all employees to overlap in the office three days a week may need more dedicated and less shared space, since the inconvenience of working in tight quarters will occur for three business days every week. 

Reasons for working in the office. Additionally, other reports such as CBRE’s “Real Estate Strategy Reset” have indicated that with more remote work, the office space will need to be more engaging, enticing and functional to draw employees in. Some suggest that tech-company features such as ping pong tables, e-scooters, social outings for employees and abundant free food options will draw young professionals to the office. However, older members of the workforce, especially those caring for children or aging parents, will need different incentives or even mandates to work in the office. 

Many of these studies assume that employees will gather, to varying degrees, for critical collaborative sessions, team projects under deadline, or to use equipment or tools not available at home, resulting in an increase of collaborative workspace and meeting rooms. When the office becomes a destination of purpose as described above, average square footage per employee is expected to increase, further reducing the potential decrease of office demand.

Third Location. The terms WFH and remote work are often used as synonyms. But remote work can also include a “third location” in addition to the main office and home, creating what is called the hub-and-spoke concept. This third place could be another office closer to employee homes — in suburban locations or residential areas close to central business districts. Employees could benefit from significantly lower commute times while enjoying the benefits that an office provides (e.g., physical separation between work and home, quiet working area, proper workstation, IT support, etc.).

These office spaces could consist of direct leases for small blocks of space or day-pass arrangements with co-working providers. This component of the hybrid work model would mostly constitute a geographical office demand shift from one location to another, rather than eliminating all or some of the leased square footage. In aggregate, it could slightly reduce the overall square footage needed by a hybrid office worker, but it also has the potential to slightly increase overall office demand due to an employee that now has access to at least two office-based workstations — one in a “hub” or headquarters location, and another in a “spoke” or non-headquarters location.

These factors illustrate why a decrease in the number of days spent in the headquarters office doesn’t necessarily lead to a corresponding decrease in office demand. In other words, working from home one extra day per week, or 20% of the week, does not lead to a 20% reduction in the amount of office space needed — even without incorporating other factors explored below. 


Factors Offsetting Potential Erosion in Office Demand


To estimate the effect of the WFH dynamic on office demand, it is important to separate the recessionary impact from the equation. The main question is not limited to what office demand will be during a pandemic-induced recession, but rather what the long-term outlook for office demand will be after the current recession subsides.

More office-using jobs. On the demand side, the economic recovery will eventually increase the number of office-using jobs beyond pre-pandemic levels and the respective employment growth will offset the decline in office demand brought about by WFH arrangements. Additionally, there are strong indicators that office densification trends in the decade leading up to the pandemic went too far. As such, a general de-densification is expected to occur, further counterbalancing the decline in demand. The move toward de-densification could have a greater effect on demand for office space than pandemic-related measures such as social distancing that may turn out to be temporary.

Construction slow-down. On the supply side, elevated vacancy rates and downward pressure on rental rates and rent growth expectations should slow the future construction pipeline and eventually lead to a new equilibrium. Additionally, some of the office stock is expected to be taken off the market due to conversions into other uses such as residential or even hotel. There are many prominent examples, including New York City’s recent initiative to adjust zoning laws to allow for such conversions.

In a recent study conducted by Hines, the company referenced historical datapoints in the Netherlands where WFH-friendly laws were introduced in 2016 that led to an increase of WFH penetration, but the overall effect on office demand was still net positive when taking into account all of the above forces and counter-forces. This scenario will be analyzed in a future article to determine to what extent this case study can serve as a proxy for projecting future office demand fundamentals.




We are currently only at the beginning of the post-pandemic transformation process and it is difficult to predict the exact level of WFH adoption and other trends like migration patterns that were fast-tracked by the pandemic. Only time will tell which patterns will continue for the long term and which ones will slow down or even reverse. For this reason, real estate investors are carefully following news on this topic, especially when larger companies announce their new workplace strategies.

Since companies are not homogenous and will apply different strategies, the signals in these decisions are certainly mixed. There are companies like Salesforce, Spotify, Dropbox and Pinterest that have announced a reduction of their real estate footprint to allow for more remote work or even permanent WFH policies. But overall, the recent and significant leasing activity by strong TAMI (technology, advertising, media and information) tenants — even by some of them who praised the remote work revolution in the early days of the pandemic — still seems to suggest that they are playing the long game on the office sector. They seem to be betting on amenity-rich, state-of-the-art, inviting and engaging office space that fosters creativity, collaboration and innovation that will help them win the war for talent for years to come.

When It Comes To Technology, Returning Tenants Will Ask For More Than Ever

BY: Brian Rogal                                                                 March 30, 2021                                           Bisnow Chicago 


Comment:     This is a more reasonable article and in a way trying to predict the path to the future.  Of course it did not comment on how long that future maybe and a reasonable moderator would be all over that question.  Well it is the question of the day? Kastle's Michael Hayford at least touched on the topic but with Chicago tenants back in the office standing at only 19.6% there is a way to go.  

The technology part was illuminating but JLL's Lund comparing this to environmental standards from a few decades ago was by far the most stupid addition to the conversation.  That could be his age or maybe he is just stupid. - Not sure.   The Peter Principle is enlightening to see who gets to the top!

Level-1 Global Solutions really hit the nail on the head.  Tenants will ask more.  But than this spills back to the 9/11 attacks and the what is now referred to at the faux security or the theatre in the lobby.  This is adding in cases $1.00 /SF or more to operational costs and what has it achieved?  

I don't agree with Brookfields Christine Torres.  Very short term thinking.  Needs to let loose a little.  Have a look a few years down the road.


So what have we got here.  Its a really good snap-shot of today and into 2023.  I an not convinced that this will be fodder for 2024.  But I can caution all these managers ands owners.  Pay attention to history.  What are you stuck with and what is it that you wish you had never doneOr more to the point what are you going to do and what will you be saddles with?



2021 could end up being one of the more momentous years in the office market. Tenants will have to decide not just when they return to their workplaces but how many employees will remain at home and whether they still need the same pre-pandemic footprint. In addition, as advanced safety features are incorporated, tenants and landlords will need new technology to support these changes.

And all those decisions may start getting made quickly, especially if vaccinations continue at a robust pace and the U.S. starts approaching herd immunity.

“What we’re seeing is that a number of large tenants are dipping their toes in the water, trying to see what their workplaces are going to be from a recruiting standpoint and from a general functional standpoint,” Brookfield Properties Director of Office Leasing Christine Torres said last week during Bisnow’s Chicago Deep Dish: Innovative Technology Powering the Workplace of the Future webinar.

It’s difficult to predict how this ever-changing situation will get resolved, but Torres said she believes it’s unlikely the dense collaborative offices, so trendy just a few years ago, will return. Tenants will most likely have to space employees out and allocate more than 150 SF per person.

“Ultimately, [tenants] do want a flagship space from a branding perspective, but it will be different from what we were envisioning in 2019,” she said.

CRG Senior Vice President Geoffrey Kasselman agreed that tenants will soon return.

“I’m in constant contact with occupiers, and they are doubling down on their space commitments,” he said. “I’m increasingly optimistic by the day and by the hour. I think people are really anxious to find ways to be together, including in the workplace.”

Companies have found work-from-home techniques have been both cost-effective and productive, and considering the expense of building out online capacities in so many homes, those strategies are likely to have staying power, Kasselman said.  

“But if you have herd immunity and everyone is vaccinated, the fears of riding in an elevator, using public transportation, fears of being in communal spaces should start to subside. People will come rushing back to the CBD environment where there is such a critical mass of restaurants, cultural outlets, entertainment venues and hotels.”

Kastle Systems Director Michael Hayford said his firm has already charted the developing return. Of its clients in the nation’s top 10 markets, an average of roughly 15% were back in the office last month, but that has already jumped to 25%, with several Texas cities above 35%. Chicago is now at 19.6%, he said.

But companies will ask more from landlords when they do return, according to Level-1 Global Solutions CEO Thomas McElroy.

“There will be a higher infusion of technology in buildings going forward,” he said.

That includes touchless technology that allows tenants to access elevators and open doors with their phones, advanced air quality monitors and air filtration systems. 

“It's now a permanent part of the conversation,” JLL's Jason Lund said.

He likened it to what happened decades ago when environmental standards changed and it became required for landlords to ensure materials such as asbestos were removed from workplace environments.     

“We will get to a new normal — the issue is how and in what way,” he said. 

McElroy said from now on, anyone developing a new office product, whether new construction or adaptive reuse, will have to pay far more attention to their project's connectivity, which will determine whether it will be able to offer all the high-tech safety solutions tenants will demand. Once the architects and engineers answer the basic structural questions, the next step will be obvious.

“The next person you need to hire is your technology consultant,” McElroy said. “That can't be an afterthought.” 

And because technology changes so fast, developers will need consultants who look ahead.

“You need to plan for the first technology upgrade so you'll minimize disruption and downtime.” 

Stress Tests Reveal Office Values Could Fall 50% if WFH Sticks

Fitch ran various stress scenarios to determine how telework would impact demand, rent and net cash flow on 2012-2020 vintage office CMBS transactions.


By Les Shaver                                                                  March 11, 2021                    

Comment:   This article opens the door to valuations that maybe more reasonable in the future.  In paragraph four the talk of a capitalization rate of 4.73% beings home the recklessness of what has been going on in there market

place.  Now to be sure these are in reality Class A properties with a very solid rent roll and control over expenses. But what the buyer is giving away is any upside that can create and are fully reliant on someone else purchasing the property after a few years and an even higher price!  (There is a mismatch between return on and return of capital)  But the premise of the Finch research is that over time everyone will basically want a four day week.  I believe that this is a flawed argument from the get go.  There is simply not enough data to make these projections....   

If work-from-home trends stick after the pandemic, it could cause a permanent decline in demand for space and have a severe impact on property values, according to Fitch Ratings.

Fitch ran various stress scenarios to determine how telework would impact demand, rent and net cash flow on 2012-2020 vintage office CMBS transactions. Under scenarios of moderate and severe stresses, it found that 4.4% and zero, respectively, of 114 US CMBS office single-asset/single-borrower bonds maintain their current ratings.

Under its moderate stress scenario, Fitch assumes that employees will work remotely 1.5 days per week. That would result in a 20% decline in office workers and a 10% decline in office space demand. Fitch’s severe scenario doubles these assumptions. It assumes that rents decline at 1.25 times the reduction in space. In this occurrence, increased vacancies magnify declines in rent levels.

Under the moderate and severe scenarios, net cash flow declines 15% and 30%, respectively. Fitch assumes cap rates from its most recent surveillance review of 7.23% on average with these two scenarios. Those rates are significantly higher than the 4.73% appraisal cap rates at loan origination.

Using those assumptions, Fitch saw average market-value declines from at-origination appraised values of approximately 44% and 54%, respectively, for moderate and severe scenarios. If those declines occurred, 25% and 55% of investment-grade bonds could potentially fall below investment-grade under the moderate and severe scenarios, respectively. Already, property values fell by 38% on average in Fitch’s current rating analysis.

For comparison, office property values fell approximately 43% during the 2008 Great Recession. They recovered over three years. With a possible secular shift to working from home, values could take a lot longer to recover following this recession.

What ultimately determines if values will fall and how much is whether workers return to the office.


In a segment on CNBC’s ‘Squawk on the Street,’ Brett White, Cushman & Wakefield’s CEO and executive chairman, said the number of people working from home could double from 5% to 10%.

An additional 30% of office workers were allowed to work from home one or two days a week. White thinks that number will jump 50% to 60% after the pandemic. Additionally, 3 million workers lost their jobs in March and April and only 1.8 million have been rehired.

Overall, he could see companies with these agile workforces reduce their footprint by 10%, 15% or even 30%.

“A lot of employers should and will think of creative ways to use their space more efficiently,” White says. “And that’s going to be a drag on occupancy.” 

After Pandemic, Shrinking Need for Office Space Could Crush Landlords

Some big employers are giving up square footage as they juggle remote work. That could devastate building owners and cities.

 By Peter Eavis and Matthew Haag                                                    April 8, 2021                                                   New York Times

As office vacancies climb to their highest levels in decades with businesses giving up office space and embracing remote work, the real estate industry in many American cities faces a potentially grave threat.

Businesses have discovered during the pandemic that they can function with nearly all of their workers out of the office, an arrangement many intend to continue in some form. That could wallop the big property companies that build and own office buildings — and lead to a sharp pullback in construction, steep drops in office rents, fewer people frequenting restaurants and stores, and potentially perilous declines in the tax revenue of city governments and school districts.

In only a year, the market value of office towers in Manhattan, home to the country’s two largest central business districts, has plummeted 25 percent, according to city projections released on Wednesday, contributing to an estimated $1 billion drop-off in property tax revenue.

JPMorgan Chase, Ford Motor, Salesforce, Target and more are giving up expensive office space, and others are considering doing so. Jamie Dimon, chief executive of JPMorgan Chase, the largest private-sector employer in New York City, wrote in a letter to shareholders this week that remote work would “significantly reduce our need for real estate.” For every 100 employees, he said, his bank “may need seats for only 60 on average.”

And just as Coca-Cola’s profits would take a seismic hit if consumers abruptly cut back on sodas, owners of office buildings, many of which are owned by pension funds, insurance companies, individuals and other investors, could be pummeled if many businesses rent less space.


“The pandemic has proven that work from home is viable,” said Jonathan Litt, chief investment officer of Land & Buildings, a real estate investment firm that has taken a bearish view of the New York office market. “It’s not going away; businesses are going to adjust, and office real estate is going to take it on the chin during that adjustment period.”

Across the country, the vacancy rate for office buildings in city centers has steadily climbed over the past year to reach 16.4 percent, according to Cushman & Wakefield, the highest in about a decade. That number could climb further, even as vaccinations allow some people to go back to work, if companies keep giving up office space because of hybrid or fully remote work.

So far, landlords like Boston Properties and SL Green have not suffered huge financial losses, having survived the past year by collecting rent from tenants locked into long leases — the average contract for office space runs about seven years.

But as leases slowly come up for renewal, property owners could be left with scores of empty floors. At the same time, many new office buildings are under construction — 124 million square feet nationwide, or enough for roughly 700,000 workers. Those changes could drive down rents, which were touching new highs before the pandemic. And rents help determine assessments that are the basis for property tax bills.

Many big employers have already given notice to the owners of some prestigious buildings that they are leaving when their leases end. United Airlines is giving up some 150,000 square feet, or over 17 percent of its space, at Willis Tower in Chicago, the third-tallest building in the country and a prized possession of Blackstone, the Wall Street firm. Salesforce is subletting half its space, equivalent to roughly 225,000 square feet, at 350 Mission Street, a San Francisco tower designed by Skidmore, Owings & Merrill and owned by Kilroy Realty.

Roughly 17.3 percent of office space in Manhattan is available for lease, the most in at least three decades. Asking rents have dropped to just over $74 a square foot, from nearly $82 at the beginning of 2020, according to the real estate services company Newmark. Elsewhere, asking rents are largely flat from a year ago, including in Boston and Houston, but have climbed slightly in Chicago.

The Japanese clothing brand Uniqlo, whose United States headquarters are in Manhattan’s SoHo neighborhood, recently moved to another building nearby, an open layout with tables designed for 130 people who will go into the office only a few days a week. Many of its office workers will keep working remotely, while some employees, like those in marketing, will occasionally meet in SoHo.

“As a leader, it has been challenging because meeting people face to face is so important,” said Daisuke Tsukagoshi, the chief executive of Uniqlo USA. “However, since we are a Japanese company with global reach, the need for remote collaboration among many centers has always been part of our culture.”

The stock prices of the big landlords, which are often structured as real estate investment trusts that pass almost all of their profit to investors, trade well below their previous highs, even as the wider stock market and some companies in other industries that were hit hard by the pandemic, like airlines and hotels, have hit new highs. Shares of Boston Properties, one of the largest office landlords, are down 29 percent from the prepandemic high. SL Green, a major New York landlord, is 26 percent lower.

Fitch Ratings estimated that office landlords’ profits would fall 15 percent if companies allowed workers to be at home just one and a half days a week on average. Three days at home could slash income by 30 percent.

Real estate executives claim not to be worried. They said working from home would fade once most people were vaccinated. Their reasons to think this? They say many corporate executives have told them that it is hard to effectively collaborate or train young workers when people are not together.

These landlords also contend that the properties they own — known in industry jargon as “class A” buildings — will hold up much better than more pedestrian offices or hotel and retail buildings.

“We believe differentiated office product like Willis Tower will continue to attract quality tenants, and that buildings that have invested in amenities, services and technology will be well positioned moving forward,” Nadeem Meghji, head of real estate for the Americas at Blackstone, said in a statement.

Landlords also said that even if employees didn’t go in daily, they would want designated desks and cubicles that were socially distanced.

Some companies are eager to get people back into offices. Tech companies, including Amazon, Facebook, Google and Apple, have added office space in New York City during the pandemic, and some are also expanding elsewhere. Last week, Amazon told employees that it would “return to an office-centric culture as our baseline.”

“Companies that work in person are going to be more successful going forward than those that work virtually,” Owen D. Thomas, chief executive of Boston Properties, said.

The pandemic recession is different from past ones in ways that could benefit landlords. After the financial crisis, banks, insurance companies and similar businesses shed some 600,000 employees. But now companies that employ lots of office workers have been relatively unscathed.

“Our customers are doing well — most of them are not experiencing a recession,” Mr. Thomas said.

Colin Connolly, the chief executive of Cousins Properties, a landlord based in Atlanta, said tech companies would largely keep their office space and expand in places like Atlanta and Austin, Texas. Cousins’s four largest tenants are technology companies.

“Our view is that they aren’t making those relocation decisions to work from home,” Mr. Connolly said.

But technology companies’ appetite might not be quite as big as it was earlier. Facebook and Cousins had been negotiating a lease for 353,000 square feet in downtown Austin, but the Austin Business Journal reported in March that Facebook had backed away. The companies declined to discuss their negotiations.

“We are committed to Austin, as evidenced by our over 1,200 employees who call Austin home,” said Tracy Clayton, a Facebook spokesman.

Predictions of a return to offices have often come up empty. A year ago, many real estate executives said lockdowns would be relaxed by the summer. A year later, states have eased restrictions, and many Americans are getting vaccinated. Yet, on average, just a quarter of workers in the 10 biggest urban areas have returned to offices, a rate that has stayed mostly the same for months, according to Kastle Systems, a security company.

The cities with the lowest return rates are on the coasts, including New York, San Francisco and Washington, Kastle said, where long commutes, often on dysfunctional transit systems, are common.