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

IWG to Open Five New Regus Coworking Locations in the Carolinas

ZUG, SWITZERLAND — IWG plc, a Swiss coworking provider, plans to open five new Regus-branded flexible offices in North and South Carolina. The five locations include 3511 Shannon Road in Durham; 8024 Glenwood Ave. in Raleigh; 140 Stoneridge Drive in Columbia, S.C.; 222 N Lafayette St. in Shelby, N.C. (Charlotte suburb); and 900 Trail Ridge Road in Aiken, S.C. (Augusta suburb). All five locations will offer IWG’s full suite of services, including private offices, coworking and collaboration spaces, meeting rooms and a host of tech services, including IT support. The new Carolinas locations are part of IWG’s plan to add more than 500 locations throughout the United States.

Morning Calm Management Buys 875,000 SF Office Complex in North Dallas

DALLAS — Morning Calm Management, an investment and management firm based in South Florida, has purchased Towers at Park Central, an 875,000-square-foot office complex located at the corner of LBJ Freeway and U.S. Highway 75 in North Dallas. Towers at Park Central features a conference facility with training rooms, fitness center, tenant lounge and onsite food options, and the undisclosed seller previously invested more than $7 million in capital improvements during its hold period. Tenants include SCP Health, foodmaker Daisy Brand and insurance company Arthur J. Gallagher. Morning Calm Management has tapped Newmark to lease the complex.

Northmarq Arranges $32M Loan for Refinancing of Office Building in Melville, New York

MELVILLE, N.Y. — Northmarq has arranged a $32 million loan for the refinancing of a 273,103-square-foot office building located on the Long Island community of Melville. The four-story building at 445 Broadhollow Road was constructed in 1981 and renovated in 2021. Ernest DesRochers, Charles Cotsalas and Robert Delitsky of Northmarq arranged the 10-year, nonrecourse loan, which carried a fixed interest rate and a 25-year amortization schedule, on behalf of the undisclosed borrower. The direct lender was also not disclosed.

Cushman & Wakefield Negotiates $22.2M Sale of Medical, Office Complex in Wayne, New Jersey

WAYNE, N.J. — Cushman & Wakefield has negotiated the $22.2 million sale of Oak Hill Park, a 122,600-square-foot medical and office complex in Wayne, about 25 miles west of New York City. The two-building complex was recently renovated and was 95 percent leased at the time of sale. Frank DiTommaso, David Bernhaut, Andy Merin, Gary Gabriel and Seth Zuidema of Cushman & Wakefield represented the seller, Chopp Holdings, in the transaction. Brad Domenico of Progress Capital arranged acquisition financing on behalf of the undisclosed buyer.

Broe Real Estate Group Begins Second Phase of $200M Cherry Creek North Mixed-Use Development in Denver

DENVER — Broe Real Estate Group has unveiled plans for the second phase of its $200 million Cherry Creek North redevelopment project in Denver.

250 Clayton, an eight-story, 175,000-square-foot mixed-use building, will complement 200 Clayton, the company’s eight-story, 76,000-square-foot first phase. Fully preleased, 200 Clayton is on track for delivery in spring 2023.

The Beck Group designed 250 Clayton, which will feature retail space and institutional-quality commercial office space with floor plates as large as 27,000 square feet.

Construction of the second phase is scheduled to begin in fourth-quarter 2023.

Transwestern Negotiates Two Office Leases Totaling 36,000 SF at Chicago’s 191 North Wacker

CHICAGO — Transwestern Real Estate Services has negotiated two office leases totaling 36,000 square feet at 191 N. Wacker Drive, a 37-story, 733,759-square-foot building in Chicago’s West Loop. Katie Steele and Kathleen Bertrand of Transwestern represented ownership, Manulife Investment Management.

Quinn Emanuel Urquhart & Sullivan, an international business litigation law firm, expanded its lease from 18,864 square feet to 26,300 square feet. Kyle Kamin of CBRE represented the tenant. Maron Marvel Bradley Anderson & Tardy LLC, a national litigation defense law firm, inked a new lease for 10,121 square feet within a spec suite. Jeff Liljeberg of JLL represented the tenant.


Vertical Ventures Acquires 233,110 SF Office Portfolio in Dallas

DALLAS — California-based investment firm Vertical Ventures has acquired the DFW Financial Services Office Portfolio, a duo of buildings totaling 233,110 square feet in Dallas. The buildings are located at 4950 Amon Carter Blvd. and 14800 Trinity Blvd in the CentrePort submarket. Mike Hardage, Brooks Creech and Angela Heidman of Transwestern brokered the deal. The seller was not disclosed.

Developer Evolution Projects Receives $109M Construction Financing for 35 Stone Office Building in Seattle

SEATTLE — Seattle-based Evolution Projects has received $109 million in construction financing for the development of 35 Stone, a pre-leased office building in Seattle’s Fremont neighborhood.

Canyon Partners Real Estate provided a mezzanine loan to finance the development, concurrent with the closing of a senior construction loan from The Union Labor Life Insurance Co.

Slated for delivery in third-quarter 2024, the five-story building will offer 112,700 square feet of office space and 7,500 square feet of retail space. Onsite amenities will include a roof deck, bike parking, locker and shower suites, a central lobby with retail space and 135 parking stalls. Designed to meet Living Building Pilot Program standards, the property will reduce energy usage by at least 25 percent compared to other office buildings and is anticipated to be one of the most energy efficient and sustainable office buildings in Seattle.

Brooks Running will occupy the office space in 35 Stone, which is situated within the master-planned Campus Seattle development. Brian Kelly and Eric Lonergan of Savills represented Brooks Running in the lease transaction.

Kaden Eichmeier and Bruce Ganong of JLL represented the borrower in the financing.

Cushman & Wakefield Arranges $7.4M Sale of Loma Starr Medical Office Property in San Diego

SAN DIEGO — Cushman & Wakefield has facilitated the sale of Loma Starr, a two-building office and medical office property at 3051-3055 Rosecrans St. and 3065 Rosecrans Place in San Diego’s Midway District. Loma Starr LLC, a private investor group, sold the asset to Crown Point Systems for $7.4 million.

Totaling 28,630 square feet, the recently renovated property was 91.7 percent leased at the time of sale. The buyer plans to occupy space at the property for its own offices.

Peter Curry, Brooks Campbell and Kevin Cuff of Cushman & Wakefield’s Private Capital Group in San Diego represented the seller, while Bret Morriss of Cast Capital represented the buyer in the transaction.

Newmark Arranges $150M Loan for Refinancing of Midtown Manhattan Office Building

NEW YORK CITY — Newmark has arranged a $150 million loan for the refinancing of 295 Fifth Avenue, a 19-story, 710,000-square-foot office building in Midtown Manhattan. Dustin Stolly, Jordan Roeschlaub, Christopher Kramer, Nick Scribani, Ben Kroll and Holden Witkoff of Newmark arranged the financing on behalf of the borrower, a partnership between Tribeca Investment Group, Meadow Partners and PGIM Real Estate. Deutsche Bank provided the loan. The sponsor will use a portion of the proceeds to fund capital improvements such as a remodel of the lobby and an overhaul of the building’s windows, elevators and HVAC systems.

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

Content Partners
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