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News feed - All OFFICE

It has being difficult to cut through so many articles and try to figure out which news items are "real" and which are broker driven.  I've yet to meet a broker who does not exude irrational exuberance right through the pandemic.  It could be the worst day of their lives and they still manage smiles on their faces.  They, the vast majority of brokers, live in an echo chamber which drives me bananas.  Many of the leading trade magazines simply do not complete enough work to confirm what they are saying.  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.  In many instances it is, in many it is not.


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 all his fixed and variable expenses.  This is so much more common than one thinks or indeed has been lead to believe.  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.  This over time should rebalance itself naturally, but for now... let's layout some articles and you can decide for yourself.  JOD. 

Historic drop in demand fuels record-high downtown office vacancy


While some effects of the COVID pandemic are fading, the numbers reflect the brutal reality landlords face.

By:  Danny Ecker                                                         July 14, 2021                                           Chicago Crain's Business

Vacant office space in the Chicago's CBD accelerated to a record high for the third straight quarter in 2021. The vacancy rate rose to 19.4% during the three-month period ending June 30, 2021.  The effects of the pandemic are fading, but numbers reflect the reality facing CBD office landlords 16 months into a crisis that has "gutted" demand, tenants are "rethinking" their needs. Professionals planning to work "remotely", companies held off on new "leasing decisions", many trying to "shrink" their footprints.   Moving-outs outpaced move-ins by more than 1.3 million square feet. Dwarfs the previous negative net absorption record set in 2010 when 760,000 square feet was lost.  Scope of lost occupancy underscores the leverage held today by tenants.  Bad news for landlords is that there's still additional supply under construction, most notably at BMO Tower next to Union Station and Salesforce Tower at Wolf Point. About 3.9 million square feet of offices are coming online shortly, just a third of which has been pre-leased.

Companies left behind more downtown office space during the second quarter than they did in any full year on record, pushing the share of vacant workspace in the central business district to a record high for the third straight quarter, new data shows.

The downtown office vacancy rate rose to 19.4 percent during the three months ending June 30 amid a slew of moves from companies that recently went to other buildings and others that have shed space amid the COVID-19 pandemic, according to a report from real estate services firm CBRE. That's the highest rate CBRE has tracked in 15 years of data collection, topping the previous high of 18.6 percent at the end of the first quarter.

While some effects of the pandemic are fading, the numbers reflect the brutal reality facing downtown office landlords 16 months into a crisis that has gutted demand for downtown workspace as tenants have rethought their workspace needs. With many professionals planning to work remotely for good or more frequently than they did before the pandemic, most companies held off on new leasing decisions last year and are now trying to shrink their office footprints.

That eroding demand is represented by net absorption, a metric that measures the change in the amount of space leased and occupied compared with the prior period. During the three months ending June 30, tenants moving out outpaced those moving in by more than 1.3 million square feet, CBRE data shows. That dwarfs the previous negative net absorption record for a single year CBRE has tracked, set in 2010 when downtown lost 760,000 square feet of tenants.

A portion of that drop-off was expected, as Bank of America moved the needle by formally vacating almost 700,000 square feet at 135 S. LaSalle St. The company's move to its new namesake tower at 110 N. Wacker Drive was accounted for in CBRE's numbers when the company occupied the new space during the fourth quarter of 2020. The same goes for accounting firm RSM, which vacated 170,000 square feet at 1 S. Wacker Drive and had already moved across the street to the CME Center at 30 S. Wacker Drive, according to the CBRE data.

But the staggering scope of lost occupancy underscores the leverage held today by tenants looking for office space and the challenge facing landlords, many of whom are shelling out ballooning levels of incentives like free rent and cash to build out space.

CBRE leasing agent Kelsey Scheive said she's been encouraged by a recent uptick in building tours and leases getting signed, but acknowledged the extra-competitive environment she and her peers are facing.

"Deals are hard to make and (landlords) are getting really aggressive to make them," said Scheive, who represents landlords at buildings including 150 N. Michigan Ave.—where Crain's Chicago Business' offices are—and 125 S. Wacker Drive, among other properties. Landlords willing to offer a mix of concessions as well as flexible lease terms for companies that are still trying to figure out how much space they will need moving forward will be the ones who have early leasing success, she said.

"The buildings that are willing to do that and play ball are the ones that are certainly going to benefit," she said.

Leasing activity picked up during the second quarter as companies started calling workers back to offices with pandemic-related restrictions waning. Consumer products giant Kimberly-Clark, research firm Ipsos, dairy products maker Lactalis Heritage Dairy and business service and technology provider Impact Networking all inked deals for new or expanded offices downtown. Trucking company U.S. Xpress signed a 40,000-square-foot lease at 306 W. Erie St.—five times the size of its current office—leading a charge of local transportation logistics and freight tech firms growing rapidly and hunting for more offices.

Those deals are promising signs that the vacancy rate may flatten or fall during the second half of the year and in 2022 as those companies move in. But some of the recent activity has slipped from landlords' hands into the sublease market, where companies rushing to shed office space have found eager takers snapping up bargain deals. Lactalis, TikTok, Farmers Business Network and the Healthcare Information Management Systems Society are on the list of companies that have signed or are finalizing downtown subleases over the past few months.

The sublease activity is a mixed blessing for landlords, who are happy to see any leasing activity again to validate the importance of in-person work but grappling with a surge of sublease inventory that poses stiff competition. With a slowdown in new sublease listings and some secondary-market deals getting inked, the sublease vacancy rate downtown has now dropped for two straight quarters to 1.7 percent from a 2.5 percent peak at the end of 2020, according to CBRE.

Another headache on the horizon for landlords is that there's still more supply coming, most notably at BMO Tower next to Union Station and Salesforce Tower at Wolf Point. About 3.9 million square feet of offices are under construction downtown, just a third of which has been preleased, according to CBRE.

Scheive declined to predict whether she thinks the vacancy rate has peaked but expects more clarity about the road ahead during the second half of 2021, with many employees expected to return to offices more frequently after Labor Day. That's when companies will start getting a much better grasp on their workspace needs.

"Once people are back in the office, we'll really be able to understand what it looks like," she said, saying worker occupancy at her buildings right now is about 20 percent on the high end.

The vacancy pain isn't being felt equally across the central business district. Bank of America's move-out highlights the rising amount of vacant space in the Central Loop, while Fulton Market—which has plenty of available space to fill as well with almost 2.3 million square feet of new buildings delivered since the beginning of 2020— has recently shown signs that it could fill up quickly. Tock, Jet Support Services, Flock Freight, Hologram and Nolan Transportation Group are among the companies that have signed or are finalizing deals for new office spaces in the neighborhood.

Other positive signs for Fulton Market developers have come from property sales: Google's landlord at its 1000 W. Fulton Market Midwest headquarters sold the building last month for $355 million, or $50 million more than it traded for just five years ago; a German real estate firm is under contract to pay about $169 million for the office building at 210 N. Carpenter St.—home to Google's local cloud computing team—in a deal that stands to net a massive windfall for the 12-story building's developer, Chicago-based Sterling Bay. Herman Miller's new office and showroom at 1100 W. Fulton under contract to be sold for nearly $42 million, which would set a new record high per square foot paid for a Chicago office building.

Manhattan's Office Market Faces A Worsening Supply Problem

By: Kelsey Neubauer                                                   July 8, 2021                                               Bisnow

More than 20M SF of office space is under construction in Manhattan, and as vacancy continues to rise and leasing activity has remained well below historical levels, experts are warning about the country's largest office market being severely oversupplied for the near future. 

A total of 2.4M SF of office space was leased in the second quarter, down 15% from Q1, according to a JLL report released Thursday. Total vacancy continued to rise, hitting 14.3%, according to JLL.

“It's definitely going to be an imbalance of supply and demand going forward over the next few quarters,” said Danny Mangru, Savills' research director for New York and the Tri-State Region.

Savills, which tracks roughly 467.4M SF of Manhattan inventory in its report, found that availability hit a new record high of 18.4% in Q2, despite leasing volume ticking up.

Leasing activity isn't expected to reach 2019 levels anytime soon; Mangru predicted it will probably hover around 5M SF per quarter for a while, far below the five-year quarterly average of around 8.5M SF.

“We're seeing direct space starting to increase at a very large magnitude,” he said. “A lot of that direct space is not likely pandemic-related.” 

Huge office space accounting for millions of square feet — including Morgan Stanley’s 575K SF spread at 522 Fifth Ave. and 1.5M SF at 2 Manhattan West — is expected to come onto the market over the next year. 

“As we look to the second half of 2021 and 2022, there's still the challenge of these large blocks of space being delivered to the market through tenant relocation and unleased new construction being delivered,” Colliers Director of Research Frank Wallach said.

Colliers and Savills declined to say which large tenants could be seeking out huge spaces, but Mangru told Bisnow they are out there — looking at both sublease and direct space. 

“Large tenants within select industry segments are active with net-new expansionary requirements, and in some instances are expanding their footprints by more than 15%,” JLL New York Office Research Manager Sarah Bouzarouata told Bisnow in an email. 

Last quarter, the largest deal was the Securities and Exchange Commission’s 302K SF lease at 200 Vesey St., followed by the Legal Aid Society’s lease at 40 Worth St., both of which were expansions, according to Colliers' quarterly report. The largest new lease in the second quarter was signed by SPARC Group at Penn 11 for 156K SF, per Colliers.

With more available space and not enough activity to fill it up, the flight-to-quality trend that emerged before the coronavirus pandemic — part of what spurred the breakneck pace of office construction — has accelerated.

Eighty percent of leases signed last quarter were for Class-A office space compared to 65% in 2019, according to JLL. Of the sublease deals signed last quarter, 90% were for Class-A space.

“The pandemic's impact on workplace preferences has certainly reinforced the shift towards higher quality, well-located buildings,” Bouzarouata said. 

Around 44% of Manhattan office inventory is Class-B or Class-C, while 55% of inventory is Class-A, Mangru said. The trend has already led to an onslaught of renovations as landlords hope to remain competitive in today’s market. 

“If there's a Class-B space, and it's borderline Class B, B+ it's really a value-add …  that's probably going to move quicker than something that's more of a legacy building or legacy space,” Mangru said. “For those Class-B, Class-C buildings, I think they're gonna really have to reassess what kind of improvements are going to be needed or how they're going to be able to compete with the newer products on the market."

Quarterly rent rates reveal a flight to quality as well. While the asking rent has gone down year-over-year, according to Savills’ report, taking rent has gone up year-over-year, reaching $83.98 per SF, up from $79.97 in Q2 of 2020. 

"[This trend] speaks more to tenant opportunity than any true increase in pricing, as the majority of deals occurring now are in high-end buildings and spaces,” Savills’ report states. 

All experts say they are hopeful that the market is moving toward a recovery, especially as indicators show that office tenants are looking for workers in New York. 

“The rising war for talent is expected to drive new activity, which the market has already witnessed as companies like Coinbase and Fashionphile opened new office locations in New York recently,” Bouzarouata said

Touring activity is higher than it was pre-pandemic and tenants are eager to cash in on discounts and tenant perks, according to JLL. 

“We still have a long ways to go to get back to pre-pandemic levels,” Mangru said. “While we're slowly getting there, there's still a long ways to go.”

Contact Kelsey Neubauer at

WeWork Reports $2.1 Billion Loss After Settlement With Co-Founder Adam Neumann

Location Closures, $494 Million Deal With Former CEO Weigh on Results

By Mark Heschmeyer                                                       May 21, 2021                                               CoStar News

There is so much to unpack here. The $2.06 billion loss in the first quarter is an eye-opener but one of many. By December 2020 WeWork at exit 106 pre-open or under performing locations.  They currently have operations in 774 locations in 112 markets worldwide and an occupancy rate of 50% which is at three points higher since December 2020.  WeWork have amended over 100 leases to reduce their rental costs by over $4 billion.  It appears that they have also ended a further 21 leases in addition to amending 76 other leases in markets that they are successful operating.  It is expected of them to say that they see encouraging signs of recovery due to sales activity, but this is lined with their acknowledgment that some of the success is temporary (my words not there's) as employers try to get a handle on future space requirements.  It's difficult to see a significant path forward in the near term. It's not a stock I would buy if they go public on their second attempt.  Even saying second attempt does not bode well in any shape manner or form.

As it prepares for a future as a public company, WeWork’s past as a startup continues to take a toll on the flexible office space provider.

WeWork reported a loss of $2.06 billion for the first quarter on Friday . Significant components of the loss came from one-time costs including a $352 million change in fair value of warrants owned by Japan-based investor SoftBank Group, a $71 million foreign currency loss, and a $494 million stock purchase and settlement with WeWork’s co-founder and former chief executive, Adam Neumann.

The New York company parted ways with Neumann after it scrapped an attempt to launch an initial public offering in 2019 amid concerns about the company's corporate governance and its finances. The settlement ends that connection to the past. Now WeWork is again seeking to go public, this time with real estate veteran and new CEO Sandeep Mathrani leading a $9 billion merger with a special-purpose acquisition company, BowX Acquisition Corp.

WeWork also reported a $299 million impairment driven by exiting buildings in the first quarter.

Since coming on board in February 2020, Mathrani has overseen the whittling down of the firm. At the end of 2020, WeWork had exited 106 pre-open or underperforming locations and amended over 100 leases in moves it said would cut $4 billion in future lease payments.

That downsizing continued in the first quarter. WeWork reported ending 21 leases and executing 76 lease amendments. The firm estimates it has achieved $275 million in cumulative rent savings since the beginning of 2020 as a direct result of its ongoing strategic optimization efforts, excluding full and partial terminations.

WeWork did not immediately respond to CoStar’s request for a comment on the first-quarter financial results.

The company reported that it continued to see encouraging signs of recovery with sales activity, a critical indicator of future revenue, ramping up over the first quarter. Clients contracted for 24,000 gross new desks or workspaces in January, 25,000 in February, and 38,000 in March. The sales amounted to about 4.4 million square feet of space and $850 million in total contract value.

“March represented the first month where the company achieved both positive net desk sales and positive net membership gains since February 2020,” WeWork said in a regulatory filing. “The sales strength we saw throughout Q1 has continued into April and May, with 28 of WeWork’s 112 total markets over 60% physical occupancy in April.”

Occupancy across all of 774 locations worldwide stood at 50% at the end of March, up from 47% in the fourth quarter.

The number of prospects touring WeWork properties also returned to pre-pandemic levels, and overall average commitment length increased to 21 months, the company said.

WeWork also reported a strong sales pipeline with $1.9 billion of committed revenue for 2021, including revenue realized in the first quarter.

“The demand for WeWork space today is higher than it was prior to the pandemic,” Marcelo Claure, chief operating officer of SoftBank, said this week in a Bloomberg interview.

Customers “are basically sending us their employees because they don’t know how many days they’re going to be working,” Claure said. “They don’t know where their business is going to grow.”

BowX is preparing to host a special meeting of its stockholders to vote on the merger. The date and time of the meeting has not been set yet, however.

A Realistic Timeline for Office's Recovery

"People have to sit somewhere, and most do not want to sit at home all of the time."


By Lynn Pollack                                                                   May 13, 2021                                  

Highlights...  The market will recover over time and show improvement bu Q2-2022.  Plus 64-,million Square feet tom be added in 2021. Effective rents down by 12%. A high percentage of short term deals.


Despite bleak forecasts from some experts, the office sector will return to pre-pandemic levels—it’ll just take time, according to analysts from Cushman & Wakefield. 

The firm’s baseline scenario presented in a recent report on the asset class, has US office vacancy reaching an inflection point and beginning to improve in the second half of 2022, after which point it will “fall precipitously downward.”


Vacancy has increased significantly over the past 18 months (See article Immediately below), driven partly by the pandemic’s push to remote work and also by a glut of new office stock. About 14 million square feet of new office space was delivered in Q1, with a total of 64 million square feet expected by year’s end. 

Effective rents, which were down in Q1 2021 12% year-over-year in major markets and down 5% in non-major markets, will likely rise again by the second half of next year or the first part of 2023, Cushman & Wakefield experts predict. Rents generally follow vacancy, so vacancy begins falling, rents will follow.  


But there’s a caveat in the form of the usual “pandemic disclaimers”: as the country recovers from COVID, there’s a much smaller sample size of deals to draw from and an “abnormally high percentage” of short-term renewals). In addition, while starting rents are holding well, concessions are way up, with average tenant improvement allowances in some major markets rising approximately $70 per square foot pre-pandemic to $85-$90 in Q1. And there’s the issue of location: “real estate is an intensely local product,” C&W notes in the report, “and not every city, every submarket, every building will follow the same glide path.”

“Regardless of how remote working shakes out, the economy is going to continue to produce knowledge-based workers, business formation will improve, and people have to sit somewhere, and most do not want to sit at home all of the time,” the report says.  Interestingly, the firm notes that data it collected in conjunction with CoreNet Global shows that companies are no more apt to consider a “remote-first workplace portfolio strategy” than they were pre-COVID. 

“Unless for some reason we all decide we don’t want to sit under the same roof ever again, it is reasonable to conclude that office buildings will repopulate, it’s just a matter of time,” the report says. 


Last month, Cushman’s CEO Brett White told CNBC that while bad times are immediately ahead for the office sector, job creation will likely reverse that in the near term. 

“We’re very optimistic with the signs … that we’re seeing in the marketplace right now," White told CNBC.

Can New Jobs Make Up for the Decrease in Office Demand?

Unfortunately the future is murky when it comes to the number and type of new jobs that will be created. 


By Erik Sherman                                                                April 28, 2021                                     

Brett White, CEO of global commercial real estate services giant Cushman and Wakefield, sees some bad times immediately ahead for office space, though he expects that to reverse with new job creation.

“We’re very optimistic with the signs … that we’re seeing in the marketplace right now,” White told CNBC in a recent television interview. He pointed to increased “transactional velocities” and market activity, all dependent on vaccination levels or a lack of Covid-19 cases in countries like Australia and New Zealand.

As of last fall, C&W found office space demand to decrease by 30% more during the pandemic than the 2008 Great Financial Crisis.

The looming downward pressure of less need hasn’t suddenly evaporated, either. For example, in his annual shareholder letter, JP Morgan CEO Jamie Diamon wrote that remote work will “significantly reduce our need for real estate.” Both Salesforce and PricewaterhouseCoopers are also trying to drop large amounts of office space, according to the Wall Street Journal.

Despite improvements in office space demand, office vacancies have continued to increase. Part of the explanation is the pandemic-driven shift to remote work. Another is new office building stock that was already under construction. Developers and builders delivered 14 million square feet of new space in Q1; 64 million square feet is expected by the end of 2021.

Research from CBRE suggests that 98% of surveyed respondents expect to return to the office by the third quarter of 2021, but that doesn’t necessarily mean the same levels of occupancy.

What does all of this add up to? White said that CEOs are generally talking about a 10% to 15% reduction in demand for office space in the immediate near term. But he added, “it’s important to remember that over the next two, three years, that will be fully mitigated by the creation of new jobs in the US economy and global economy.” He added, “We think, by the way, that the three million office working jobs lost in the early months of the pandemic will be fully regained by the fourth quarter of this year.”

It is important to note, however, that office jobs regained aren’t necessarily the same as regained jobs in a traditional office setting given the embrace of hybrid work schedules by many companies. As for totally new jobs, the future is murky.

Although there has been a large uptick in new business formations, the major bulk of them are so-called low propensity, which means little chance for payroll and, as a result, could mean low need for office space beyond flexible facilities.

So far as job growth, the following graph shows Bureau of Labor Statistics total non-farm jobs per month, from January 2019 through March 2021 (February and March 2021 aren’t final figures at time of publishing.):

The economy is still 9.4 million jobs short of the February 2020 high point. Using Excel’s forecast tools to project estimates based on job growth since recovery started in August 2020, it would likely take until February 2023 to catch up to the job numbers of February 2020. Although greater vaccination rates might significantly improve the pattern, expecting millions more additional jobs to soak up reduced office occupancy is optimistic.

The BLS also projects significant changes in job growth patterns. Retail trade, traveler accommodation, food services, construction, corporation management, real estate, utilities, finance and insurance, energy, wholesale trade, and others all are expected to see job losses from a non-pandemic expected baseline between a fraction of a percent to 12% or more. The winners will be mostly in professional, scientific, and technical services as well as information and manufacturing. But none hit a projected rate of even 2%.

In this changing environment, translating job numbers into office space needs is far from straightforward. Uncertainty will be the watchword, rather than an expectation of job growth eliminating occupancy concerns.

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.

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.” 

Office Market Could Shed 145M Square Feet in the Next Two Years

Demand for office space has decreased 20% more during the pandemic than it did during the Great Financial Crisis.


By Kelsi Maree Borland                                              September 24, 2020                                   

The office market has been rocked by the pandemic, thanks to both widespread job loss and remote work mandates. Now, a new report from Cushman & Wakefield captures the pandemic’s impact on the office market as well as looks at a potential path to recovery.

In the company’s baseline scenario, which has a 50% probability, the US office market will shed 145 million square feet of office space in the next two years, through the end of 2021. Job loss is the driving force behind the degeneration of the US office market, with the report anticipating a loss of 1.7 million jobs in 2020. This is an improvement compared to the 2.6 million jobs lost in the second quarter.

To put the impact of the pandemic in perspective, C&W has determined that office demand will decrease 30% more during the pandemic than it did during the 2008 Great Financial Crisis. Negative absorption will also outpace prior recessions. In the Great Financial Crisis, absorption totaled -2.1% of total inventory, and in the previous recession, the Dot Com Recession, total office absorption totaled -2.4% of total office inventory at the time. In the current pandemic, Cushman & Wakefield estimates that office absorption will decrease 2.7% of total inventory. These numbers represent the market contraction through the total downturn.

The end of the road is hard to see. Today, re-opening companies and co-working and flex office providers are driving the leasing demand, but once the dust settles, there will be a clearer picture of permanent remote work policies and other hybrid models that could reduce the need for office space. As a result, C&W’s baseline scenario predicts that the US office vacancy rate will peak at 17.6% with negative absorption in both 2020 and 2021.

It is important to note that the pandemic didn’t initiate this trend. Office users have been shedding office space and moving to denser workplace models for years—and there office absorption rates were experiencing structural decline. The pandemic could reverse that downsizing trend now that employees need more space for social distancing. However, in place of densification, remote work policies will likely continue the trend of reduced needs for office space. As a result, the report postures that absorption rates will actually trend lower than they had under the densification trend.

This is the firm’s baseline outlook. The report also includes a downside and upside scenario. In the downside scenario, which has a 10% probability, job losses will continue into 2021 with a total of 2.9 million jobs lost through the downturn, and the recovery will begin in 2022. This scenario also assumes that Congress will not pass another round of relief, resulting in increased bankruptcies and creates a fiscal cliff. Overall, the downside scenario will see negative absorption of 291 million square feet nationally through the end of 2021 and office vacancy peaking at 20.2%. This would be the highest vacancy rate in 25 years.

On the upside—a scenario that also has a 10% probability—job losses will total only 940,000 square feet, and jobs will begin rebounding in 2021. In this scenario, job loss will recover in the third quarter of 2021. Like the baseline scenario, this scenario assumes that Congress will pass a $1.5 trillion relief package, and it also assumes a speedy resolution to the virus. With stronger and swifter job growth, the office market would only see 69 million square feet of negative net absorption through the end of 2021 with the national vacancy rate peaking at 15.6%.

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