U.S. Office Rents Won’t Return to Pre-Pandemic Levels Until 2026, Says Moody’s Analytics
NEW YORK CITY — It will take at least five years for office-using companies in the United States to demand enough office space to push rents to pre-pandemic levels, with more short-term pain for office owners on the horizon, according to projections by Moody’s Analytics.
The New York City-based research firm, which is a subsidiary of ratings agency Moody’s Corp. (NYSE: MCO), issued the forecast last week, punctuating its findings with an assertion that U.S. office vacancy would rise to 19.4 percent in 2021.
That figure would represent a 30-year high, surpassing the national vacancy rate of 17.6 percent that occurred in 2010 toward the end of the Great Recession. It would also be the highest national vacancy rate recorded since the 19.7 percent posted during the Savings & Loan Crisis of the early 1990s.
In addition, the report from Moody’s Analytics predicted that the national office vacancy rate of nearly 20 percent would hold equally steady in 2022, while rents would fall much more sharply in 2021 than the 0.7 percent decline they posted in 2020.
Effective office rents are projected to decrease by 7.5 percent in 2021 before recovering in 2022 as companies continue to implement entire or partial work-from-home programs in response to COVID-19. The shift to remote working structures is also likely to deter many office users from moving forward with and office lease renewal or expansion plans they may have had.
“Though we expect the office sector will suffer more severely in 2021 than it did in 2020, the vaccine rollout brings hope for more in-person business later this year and into 2022,” says Barbara Denham, senior commercial real estate economist at Moody’s Analytics.
In terms of specific markets, the report found that office rent declines were likely to be sharpest in Tier 1 markets like San Francisco and New York City. Moody’s Analytics is forecasting negative rent growth of 15 percent and 8.9 percent, respectively, for those markets in 2021. Both of those office markets are likely to bottom out in terms of asking rents in late 2022, the report concluded.
Among the most high-profile companies in either of these markets to recently announce a long-term plan to de-densify its office buildings is Salesforce (NYSE: CRM). The San Francisco-based cloud software provider, one of the fastest-growing companies of the last five years whose workforce now exceeds 50,000, told the Wall Street Journal that it will continue with remote-work programs after the pandemic subsides. Employees who do come into their offices will find their settings vastly altered in terms of density.
According to the Journal, Salesforce expects that in the post-pandemic world, roughly two-thirds of its employees will come into the office one to three days per week. While it’s worth noting that 40 percent of the company’s workforce adhered to this structure before the pandemic, Salesforce executive Brent Hyder said that he “doesn’t believe we’ll keep every
Airbnb to Open New Offices in West Midtown Atlanta
ATLANTA — Airbnb, a San Francisco-based lodging company, plans to open a new technical hub in the West Midtown neighborhood of Atlanta. Dubbed Atlanta Tech Hub, the new office will be situated within Encore, a 50,000-square-foot space inside SJC Ventures’ Interlock mixed-use project at the corner of 14th Street and Howell Mill Road. Situated about three miles from Georgia State University and one mile from Georgia Tech, Airbnb’s office space is scheduled to open later this year.
Encore is a creative loft and mixed-use office space that is dedicated to technology startup growth and expansion. Airbnb’s initial office will be 5,000 square feet with eventual plans to move to a bigger space later on. Georgia Advanced Technology Ventures, an affiliate of the Georgia Tech, is managing Airbnb’s new offices.
In the beginning of 2021, Airbnb first announced it was opening a new hub in Atlanta but did not disclose what part of the city. The lodging company says it hopes to add new high-skilled technical and non-technical jobs at the tech hub.
According to research by Oxford Economics, in 2019, Airbnb guest spending in Atlanta supported 3,400 jobs, including 1,200 jobs in the restaurant business. The company also says it has over 20 employees in the Atlanta area, and has been actively recruiting since May 2021 for jobs in its new office.
CIM Group Closes $175M Loan for Office Tower in Tampa
TAMPA, FLA. — CIM Group has closed a $175 million loan for Bank of America Plaza, a 42-story, Class A office tower in Tampa. A fund managed by CIM Group provided the funds to the borrowers, an affiliate of Miami-based Banyan Street Capital and funds managed by Oaktree Capital Management LP.
Built in 1986 and renovated in 2018, Bank of America Plaza spans two city blocks, making it one of the largest office developments in the Southeast, according to CIM Group. The property includes a 795,944-square-foot office tower and an adjacent 1,260-space parking structure that is connected to the property by a covered, climate-controlled skybridge. Building amenities include a newly renovated lobby, fitness center, tenant business lounge and a conference facility. Bank of America Plaza is Energy Star-rated and meets LEED Gold standards.
Located at 101 E. Kennedy Blvd. at the corner of North Tampa Street and East Kennedy Boulevard in Tampa’s Central Business District, the property is situated 9.2 miles from Tampa International Airport.
Oxford Cos. Launches Equity-for-Rent Office Program for Startup Companies in Ann Arbor
ANN ARBOR, MICH. — Oxford Cos. has launched the Oxford Instant Office Simple Agreement for Future Equity (OXIO SAFE) program aimed at helping Ann Arbor startups utilize office space with minimal upfront costs. Oxford says the program will provide a pathway for startups to lease office space without the significant financial risk that comes with entering a traditional commercial real estate lease.
Qualified startups can receive up to one year of rent in exchange for a simple agreement for future equity. Open to startups that are currently working with a local incubator or economic development organization in the area, OXIO SAFE leases are available for six to 12 months for move-in ready office suites.
Ann Arbor is home to one of the fastest growing startup hubs in the nation, according to Desai Accelerator, a professional business accelerator created in partnership with the University of Michigan. Oxford Cos. is a fully integrated real estate company offering services in property management, commercial and residential leasing, commercial construction and investments.
Vista Cos. Sells 115,000 SF Office Building in North Austin
AUSTIN, TEXAS — An ownership group led by an affiliate of Houston-based investment and management firm Vista Cos. has sold Vista Park Central, a 115,000-square-foot office building located on Parmer Lane on the north side of Austin. The property was 93 percent leased at the time of sale. Kelsey Shebay and Drew Fuller of JLL represented Vista Cos., as well as the California-based buyer, in the transaction.
Newmark Negotiates $151M Sale of Office Campus in Andover, Massachusetts
ANDOVER, MASS. — Newmark has negotiated the $151 million sale of a four-building office complex that is situated within Minuteman Park, a corporate campus located about 25 miles north of Boston in Andover. The buildings at 30, 100 and 200 Minuteman Road, along with the property at 138 River Road, total approximately 600,000 square feet. Robert Griffin, Edward Maher, Matthew Pullen, Samantha Hallowell and William Sleeper of Newmark represented the seller, Spear Street Capital, in the transaction. The buyer was not disclosed.
JLL Income Property Trust Purchases Medical Office Property in Durham
DURHAM, N.C. — JLL Income Property Trust has purchased Duke Medical Plaza at Patterson Place, a 59,978-square-foot medical office building in south Durham. Brannan Knott, John Mikels, Daniel Flynn and Woody Flythe of JLL Capital Markets represented the seller, an entity doing business as BP Phase2 LLC, and procured the buyer. The sales price was not disclosed.
Completed in 2010, Duke Medical Plaza at Patterson Place is fully leased with Duke Health leasing more than 80 percent of the space. The property offers a variety of services, including dermatology, micrographic surgery, radiology, women’s health, urogynecology and obstetrics/gynecology (OB/GYN).
Located at 5324 McFarland Dr., the four-story property is situated adjacent to Patterson Place Shopping Center. Additionally, the medical office facility is situated at the intersection of U.S. 15/501 and Interstate 40. The property is also 5.3 miles from Duke University, 6.3 miles from Duke University Hospital and 5.3 miles from UNC Medical Center.
JLL Arranges Sale of Two-Building Office Portfolio in Downers Grove, Illinois
DOWNERS GROVE, ILL. — JLL Capital Markets has arranged the sale of Corridors I and II, a two-building office portfolio totaling 301,606 square feet in the Chicago suburb of Downers Grove. The sales price was undisclosed. Built in the late 1990s, the properties are located at 2651 and 2655 Warrenville Road with immediate access to I-88 and I-355. The five-story buildings are fully leased to tenants such as Huntington, Oak Street Health and Citgo. Amenities include a fitness center, conference facility, deli, tenant lounge and parking garage. Patrick Shields, Sam DiFrancesca, Jaime Fink, Jeff Bramson and Bruce Miller of JLL represented the seller, Soundview Real Estate Partners. The team also procured the buyer, Group RMC.
PathGroup Signs 126,596 SF Office, Lab Lease in Coppell, Texas
COPPELL, TEXAS — Nashville-based medical consulting firm PathGroup has signed a 126,596-square-foot lease to occupy the entirety of 121 Corporate Center, an office and laboratory building in Coppell, located near Dallas-Fort Worth International Airport. Dean Collins, Mark Collins, Jason Dodson, Michael Sessa and Jack Keenan of Cushman & Wakefield represented PathGroup in the lease negotiations. Nathan Durham and Duane Henley of Newmark represented the landlord, a partnership between Blackstone and Link Logistics Real Estate.
Newmark Negotiates $190M Sale of Metro Boston Office Campus
ANDOVER, MASS. — Newmark has negotiated the $190 million sale of 3000 Minuteman Road, an office development that is situated within Minuteman Park, a corporate campus located about 25 miles north of Boston in Andover. According to LoopNet Inc., the property consists of six buildings totaling roughly 700,000 square feet on a 120-acre site along the Merrimack River. Robert Griffin, Edward Maher, Matthew Pullen, Samantha Hallowell and William Sleeper of Newmark represented the seller, Atlantic Management, in the transaction. The buyer was not disclosed.
Rockhill Capital Plans 1,807-Acre Shoop Ranch Mixed-Use Development Near Fort Worth
NEW FAIRVIEW, TEXAS — Rockhill Capital and Investments has acquired Shoop Ranch, a 1,807-acre plot of land in New Fairview. The tiny city of fewer than 2,000 residents is located approximately 30 miles northwest of downtown Fort Worth.
Rockhill plans to build a massive mixed-use project on the site, which will include 4,150 single-family homes, 900 multifamily residences, shops, restaurants, offices, public spaces and government buildings such as schools, a town hall, public pool and fire station.
“The [city] council and staff are focusing on maintaining our current rural feel, natural elements and open space, while creating a development and city center where people can live, work and play,” says Ben Nibarger, New Fairview’s city administrator. He notes that the city and Rockhill have been planning the development for about a year.
“New Fairview is in a position for growth, and we are working with the city to thoughtfully plan a thriving community that will satisfy the needs for a city hub and additional housing, while also celebrating the area’s natural beauty,” says Jennifer Alexander, project manager at Rockhill Capital and Investments.
The Shoop Ranch property features more than 1.5 miles of Oliver Creek, which offers fishing locations for bass and perch. Rockhill plans to retain the area around the creek and its tributaries as public green space. The proposed master plan includes pedestrian hiking and biking trails.
Rockhill will also help fund infrastructure improvements to support the project, such as water, sewer and high-speed internet upgrades, as well as the expansion of County Line Road into a four-lane highway.
Infrastructure construction for the master plan is scheduled to begin in two to three years. A timeline for the rest of the project was not disclosed.
Real estate brokers Bryan Pickens of Republic Ranches, along with Edward Bogel and David Davidson Jr. of Davidson Bogel Real Estate, assisted with the land sale transaction.
Based in nearby Frisco, Rockhill Investments is a commercial and residential developer with experience in land development and construction management.
— Jeff Shawspace in every city we’re in, including San Francisco.”
The pessimistic sentiment stems in part from a poor finish to 2020. Moody’s Analytics’ fourth-quarter report found that the U.S. office market ended the year with a vacancy rate of 17.7 percent, fueled by some 10 million square feet of negative net absorption in the fourth quarter.
That vacancy rate represents an increase of 40 basis points from the third quarter and an increase of 90 basis points year over year. The fourth-quarter report also stated that effective rents dropped by 0.6 percent during that period.
“There remains much uncertainty as to how secular shifts in office demand will truly impact performance metrics like rents, occupancies, net operating income and cap rates,” conclude the authors of the fourth-quarter report.
Different Sources, Similar Conclusions
As of December 2020, office leasing activity was down by 61 percent year-to-date, according to the VTS Office Demand Index (VODI), which tracks tenant demand for office buildings across the nation via in-person and virtual touring activity.
The index charted national leasing trends over the course of 2020, finding that the most severe drop-off occurred at the onset of the pandemic in the spring, followed by a modest recovery in the summer and more activity in the third quarter, only to close the year on another decline. The VODI synopsis of 2020 did note, however, that the fourth quarter is typically the slowest time for office leasing based on seasonal patterns.
The U.S. office market is still facing tremendous uncertainty in terms of when, what and how a full recovery will take place, notes Simon Rubinsohn, chief economist for the Royal Institute of Chartered Surveyors (RICS), a London-based business valuation and economic research group. Nonetheless, early indicators suggest that an office market rebound will be defined by less density within buildings.
“In our surveys, we’ve asked businesses how much less office space they think they will require based on pandemic-related changes, and the general consensus is somewhere in the neighborhood of 15 percent,” he says. “The comments and feedback we’ve received indicate that high-spec buildings that are better equipped to address health and wellness concerns, as well as environmental sustainability, will be at the forefront of investors’ minds.”
Rubinsohn concurs that office rents across the nation are likely to remain under downward pressure for the next 12 to 18 months, in primary and secondary markets alike. He is, however, encouraged by existing research that supports team usage of physical office space as a means of fostering productive collaboration.
— Taylor Williams