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

MRP Realty, LaSalle Near Completion of Crystal & Clark Mixed-Use Redevelopment in Metro D.C.

ARLINGTON, VA. — MRP Realty and LaSalle Investment Management are nearing completion of the redevelopment and rebranding of Crystal & Clark, previously known as Century Center, in the National Landing neighborhood of metro Washington, D.C. Located at 2450 Crystal Drive and 2461 S. Clark St. in Arlington, the mixed-use development comprises two buildings and spans 639,621 square feet.

2450 Crystal Drive features 336,229 square feet of office space and 51,443 square feet of retail space, 36,000 square feet of which is leased or under negotiation. 2461 South Clark comprises 232,969 square feet of office space and 23,980 square feet of retail space, 5,000 square feet of which is currently leased. Aerospace and defense manufacturing giant Raytheon recently renewed its lease at the development in 2021 for 120,000 square feet of office space across both buildings.

The redevelopment has included new access to outdoor seating and gathering areas, the addition of ground-level retail and restaurant space, a pedestrian plaza, streetscape improvements and office improvements including lobby updates, a new conference center, fitness and locker rooms, second- and third-floor terraces and amenity space. Plans for the property also include the construction of a 334,270-square-foot residential tower comprising 302 units and 21,863 square feet of retail space.

Davis Construction is general contractor for the project, and Gary Cook, Stoddie Nibley and Neil Alt of Lincoln Property Co. handle office leasing at the property.

Globetrotters Engineering Renews 23,376 SF Office Lease in Downtown Chicago

CHICAGO — Globetrotters Engineering Corp. has renewed its 23,376-square-foot office lease at 300 South Wacker in Chicago’s central business district. The engineering firm is relocating to the building’s third and fourth floors after having previously occupied the second and fourth floors. The tenant, which has occupied space at the building since the 1980s, is also redesigning its workspace. Josh Feldman of Cushman & Wakefield represented the tenant in the 11-year lease. Sandy Macaluso of Golub represented the landlord on an internal basis. Globetrotters maintains more than 175 employees at 300 South Wacker.

HBK Capital Signs 16,428 SF Office Lease at 452 Fifth Avenue in Midtown Manhattan

NEW YORK CITY — HBK Capital Management has signed a 16,428-square-foot office lease at 452 Fifth Avenue in Midtown Manhattan. The alternative investment firm will occupy the entire 22nd floor at the 30-story building. Paul Glickman, Ben Bass, Kristen Morgan and Kate Roush of JLL represented the landlord, Property & Building Corp. Ltd., in the lease negotiations. Silvio Petrillo and Tamika Kramer of CBRE represented the tenant.

Oracle Expands Footprint to 100,000 SF at Radius Office Building in Nashville’s Gulch District

NASHVILLE, TENN. — Tech giant Oracle has expanded its footprint at Radius, a nine-story office building located at 601 11th Ave. N in Nashville’s Gulch district. The company is expanding its footprint from 31,580 square feet to 100,000 square feet. Rubicon Equities, the landlord of Radius, also recently signed a new lease with CoreTrust, a locally based commercial sourcing agency. The company leased the entire seventh floor, totaling 31,580 square feet. In addition to offices, Radius features a fitness center with lockers and showers, café, onsite security, rooftop terrace, 18,500 square feet of ground-level retail space and a parking garage with 900 spaces. Stream Realty Partners is the property manager for the building and shares the leasing assignment with Sandeema Co. There is currently 125,000 square feet of space available for lease.

Joint Venture Acquires East Tampa Office Complex for $31M

TAMPA, FLA. — A joint venture between Torose Equities, Merrimac Ventures and Linkvest Capital has purchased Interstate Corporate Center, a 350,000-square-foot office complex on Tampa’s east side. The property is located on a 50-acre site at 6302 E. Dr. Martin Luther King Jr. Blvd., about six miles from downtown Tampa. An entity doing business as B&L Investments Interstate LLC sold the property for $31 million. Dale Peterson, Joe Chick, Kristen Hagen, Courtney Snell and Nick Sharpe of CBRE represented the seller in the transaction.

Built in 1984 and renovated in 2018, Interstate Corporate Center was 80 percent leased at the time of sale to tenants such as Hillsborough County School Readiness Coalition Inc., Ashley Furniture Industries Inc., HealthPlanOne and the Florida Department of Revenue Child Support Services. The largest tenant, Concentrix CVG Customer Management Group Inc., occupies 81,134 square feet.

JLL Brokers Sale of 303,130 SF Office Portfolio in Cincinnati

CINCINNATI — JLL Capital Markets has brokered the sale of a two-building office portfolio totaling 303,130 square feet in Cincinnati for an undisclosed price. The first asset, 400 Oak St., rises seven stories and spans 156,000 square feet. Originally built in 1924, the building was renovated in 2011. The second property, 2905 Vernon Place, is a four-story, 147,130-square-foot building that was constructed in 2017. The two properties are fully leased to Cincinnati Children’s Hospital Medical Center for administrative functions and other nonclinical uses.

Jaime Fink, Bruce Miller, Sam DiFrancesca and Patrick Shields of JLL represented the seller, 90 North Real Estate LLP, and procured the buyer, Azora Exan. Keith Largay and Lucas Borges of JLL arranged acquisition financing on behalf of the buyer.

Marcus & Millichap Negotiates $3M Sale of Office Building in Plainfield, Illinois

PLAINFIELD, ILL. — Marcus & Millichap has negotiated the $3 million sale of a 20,281-square-foot office building in Plainfield, about 40 miles southwest of Chicago. Located at 23909 W. Renwick Road, the property is fully occupied and features a new roof and parking lot. The seller, a Chicagoland limited liability company, purchased the building a little over a year ago and decided to sell it after marking repairs and adding tenants. Tammy Saia and Tami Andrew of Marcus & Millichap represented the seller. The buyer was undisclosed.

Bernard Financial Group Arranges $2M in Financing for Office Property in Auburn Hills, Michigan

AUBURN HILLS, MICH. — Bernard Financial Group has arranged $2 million in permanent financing for a 21,256-square-foot office property in Auburn Hills. Dennis Bernard and Joshua Bernard arranged the loan on behalf of the borrower, Auburn Office Center LLC. StanCorp Life Insurance Co. provided the loan, terms of which were undisclosed.

Dickies Signs 84,000 SF Office Headquarters Lease in Downtown Fort Worth

FORT WORTH, TEXAS — Apparel retailer Dickies has signed an 84,000-square-foot office headquarters lease at 500 Taylor St. in downtown Fort Worth. Chris Doggett and Cullen Donohue of Stream Realty Partners represented the landlord, Illinois-based SADA Capital Parnters, in the lease negotiations. Randy Cooper and Wills Bauer, also with Stream, represented Dickies. SADA Capital Partners purchased the six-story building in June 2022 and is in the process of launching a capital improvement program.

LargaVista Cos. Opens 23,784 SF Flexible Coworking Space in Queens

NEW YORK CITY — Locally based firm LargaVista Cos. has opened Gaseteria Works, a 23,784-square-foot coworking space in the Long Island City area of Queens. Gaseteria Works offers coworking memberships, fully furnished private suites, meeting rooms and virtual addresses, as well as an onsite team offering concierge and administrative services. JLL manages and leases the space via Flex by JLL, the real estate giant’s flexible office and coworking platform.

space 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

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