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U.S. Office Rents Won’t Return to Pre-Pandemic Levels Until 2026, Says Moody’s Analytics

Salesforce has gone on the record to say that it expects to reduce its national office footprint considerably after the pandemic subsides. Pictured is the company's namesake building at The Union, a mixed-use development in Dallas.

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

Party City to Relocate Corporate Headquarters to Woodcliff Lake, New Jersey

WOODCLIFF LAKE, N.J. — Accessories retailer Party City will relocate its corporate headquarters to 100 Tice Boulevard, a 208,911-square-foot office building located in the Northern New Jersey community of Woodcliff Lake. The company is consolidating its current headquarters offices in Rockaway and Elmsford, New York, into one location beginning next year. Ben Brenner of Cushman & Wakefield and Harlan Hollander of Savills represented Party City in the lease negotiations. Joe Sarno Sr., Jon Meisel and Jeff Babikian of CBRE represented the landlord, Signature Acquisitions.

Parkview Financial Provides $45M Construction Loan for Medical Office Building in Aventura, Florida

AVENTURA, FLA. — Los Angeles-based Parkview Financial has provided a $45 million construction loan for a speculative medical office building located in Aventura, approximately 19 miles north of Miami. The borrower was an entity of Gomez Development Group.

The medical office project will have 142,000 square feet of space. Located at 21291 N.E. 28th Ave. on 1.6 acres, the property will include a seven-story building, as well as a four-level parking garage with 346 spaces. The site is adjacent to the Aventura Hospital and Medical Center.

Caymares Martin Architectural & Engineering Design is the project’s architect. A general contractor has not yet been announced. The project will break ground in early 2022 with completion slated for November 2022.

AmTrust Realty to Invest $100M in Chicago Office Portfolio

CHICAGO — AmTrust Realty Corp. plans to invest approximately $100 million in its Chicago office portfolio over the next two years. The portfolio consists of 6 million square feet across seven buildings located in the Central and East Loop. AmTrust has selected JLL as the leasing agent for the properties. Newly appointed AmTrust President Jonathan Bennett will lead capital improvements efforts and oversee leasing for the portfolio, along with Anne Holker, who was recently promoted to AmTrust’s managing director of leasing and acquisitions.

Citing the rise in downtown office vacancy rates and an increasingly competitive talent market, AmTrust says it has recognized the need to upgrade and reposition several of its Chicago properties to attract new tenants and bring employees back into the office. The first asset to receive improvements will be the nearly 1 million-square-foot building at 30 N. LaSalle St., which was built in 1975. Melissa Rubenstein, Joseph Gordon, Craig Coupe, Ellen Trager and Anna Panici of JLL are leading leasing efforts. AmTrust’s portfolio spans 12 million square feet across New York, Illinois and Ohio.

The Motion Agency Signs 19,681 SF Office Lease in Chicago

CHICAGO — The Motion Agency has signed a 19,681-square-foot office lease at the Reid Murdoch Building located at 325 N. LaSalle Drive in Chicago’s River North neighborhood. The creative communications agency had been a subtenant in the space since summer 2018. Built in 1913, the property spans 325,000 square feet. Dougal Jeppe of Colliers Chicago represented the tenant in the lease transaction. Landlord information was not provided.

Walker & Dunlop Arranges $170M Loan for Refinancing of Manhattan Office Building

NEW YORK CITY — Walker & Dunlop has arranged a $170 million loan for the refinancing of 122 Fifth Avenue, a 300,000-square-foot office building located near Manhattan’s Union Square neighborhood. The property was originally built in 1900 and includes retail space. Aaron Appel, Jonathan Schwartz, Keith Kurland, Adam Schwartz, Sean Bastian and Michael Ianno of Walker & Dunlop arranged the loan through PCCP LLC. The borrower, Bromley Cos., which has owned the building for more than 40 years, will use a portion of the proceeds to fund capital improvements.

KBS Signs Three Tenants, Completes Renovations at 175,262 SF McEwen Building in Metro Nashville

FRANKLIN, TENN. — KBS has signed three new tenants at The McEwen Building, a 175,262-square-foot office and retail property in Franklin, about 21.5 miles south of Nashville. Together the three tenants occupy 66,611 square feet.

One of the new tenants, Kaiser Aluminum Corp., a global aluminum supplier, has committed to 27,356 square feet of office space. Kaiser will be relocating its corporate functions from Foothill Ranch, Calif. American Renal Associates LLC, a Massachusetts-based dialysis clinic operator, signed a 26,695-square-foot lease. Lastly, an undisclosed financial institution based locally signed a lease for 12,560 square feet, which includes 1,290 square feet for retail and 11,270 square feet of first-floor office space.

The lease transaction occurred after KBS made investments to the property, including the completion of 24,130 square feet of built-out spec suite space and upgrades to the first and second floor lobbies, restrooms, coffee bar and café.

Blake Newton of Cushman & Wakefield represented KBS in the recent leasing transactions.
Rick Sherburne, Wesley Sherburne and Taylor Hillenmeyer of CBRE represented Kaiser Aluminum Corp., Tom Hooper of JLL represented American Renal Associates and Shane Douglas of Colliers represented the local financial institution in the negotiation of the leases.

KBS also completed a series of renovations to the common areas and spec suites at the property, which is owned by KBS Real Estate Investment Trust III.

Built in 2009, the seven-story building features six floors of office space and a ground floor dedicated to retail. The property features onsite dining and fitness options, onsite parking, car-charging stations and an outdoor dining patio and adjacent courtyard. Located at 1550 W. McEwen Drive, the property is located near retailers such as Bricktop’s restaurant, Whole Foods Market, lululemon athletica and Mountain High Outfitters.

IRA Capital Buys Creative Office Building in Irvine for $103M

IRVINE, CALIF. — IRA Capital has purchased 2722 Michelson, a Class A creative office building in Irvine, for $103 million.

Situated on nine acres at the intersection of Jamboree Road and Michelson Drive, the building features 24-foot ceilings, a light-filled open plan to encourage collaboration, multiple meeting spaces, a fitness center, landscaped courtyards and a well-equipped kitchen and cafeteria.

Anduril Industries fully occupies the building, which was renovated in 2019.

EML Signs 11,773 SF Office Lease at Aspiria in Overland Park, Kansas

OVERLAND PARK, KAN. — Global payment solutions company EML has signed a lease to relocate its North American corporate headquarters to Aspiria in Overland Park. The company signed an 11,773-square-foot office lease and will occupy space on the fourth floor of Building 6100. The tenant is working with Aspiria’s owner, Occidental Management, to update the space. Occupancy is slated for April 2022. Chad Stafford and Hunter Johnson of Occidental and RC Jensen and Bryan Johnson of Colliers handled the lease transaction.

Occidental plans to develop the 60 acres surrounding the Aspiria campus. Plans call for 1 million square feet of Class A office space, 380,000 square feet of retail and restaurant space, a 120-room hotel and 600 multifamily units. Design planning for the long-term project has begun.

Woodvale, Timber Hill Secure Financing for Movie Production Campus Expansion in Covington, Georgia

COVINGTON, GA. — A joint venture between Atlanta-based Woodvale LLC and Chicago-based Timber Hill Group has secured an undisclosed amount of construction financing and recapitalization for the expansion of Cinelease Studios – Three Ring, a TV and film production media campus in Covington. Eastdil Secured arranged the financing through Los Angeles-based CIM Group. Pattillo Construction Corp. is the general contractor for the project. The development cost was not disclosed.

CIM Group provided a $72 million loan for the development. The loan will be used for the recapitalization of existing Phase I operations and the construction of Phase II.

Phase I of the Cinelease Studios was completed in October 2020, with the construction of its second phase slated to start in the first quarter of 2022. Phase I included 233,000 square feet across six sound stages. The project was fully occupied within a month of completion to three production companies: Lionsgate Films, Paramount Pictures and Skydance Media.

Phase II will span 336,800 square feet, including 144,000 square feet of sound stages, 92,800 square feet of mill space, 70,000 square feet of office space and 30,000 square feet of third-party vendor storage spread across 90 acres. Amenities will include eight sound stages ranging in size from 10,000 to 66,000 square feet with 40-foot to 55-foot clear heights. Once complete, the movie production campus will be the second largest film production campus in Georgia at 569,800 square feet.

Cinelease Studios, an operator with 40 years of experience in studio management and equipment rental, manages studio operations and has a local office onsite. Herc Rentals, a TV and film industry equipment rental provider, is also onsite.

JLL Brokers $318M Sale of Lowe’s Global Technology Center in Charlotte’s South End

CHARLOTTE, N.C. — JLL Capital Markets has brokered the sale of Lowe’s Global Technology Center, a recently completed, 357,526-square-foot office tower in Charlotte’s South End submarket. Chris Lingerfelt, Ryan Clutter and Coleman Benedict of JLL represented the sellers, Childress Klein Properties Inc. and Ram Realty Advisors. An affiliate of Apollo Global Management purchased the property for $318 million, according to the Charlotte Business Journal.

The Lowe’s Global Technology Center is a 23-story tower that was completed this fall with the full interior and tenant buildout slated for completion by 2022. The building features two sky terraces, an interior auditorium, steel staircase spanning multiple floors, touchless features throughout the property and a 950-space parking deck.

Lowe’s Global Technology Center is fully leased to Lowe’s Cos. Inc., parent company of home improvement retail giant Lowe’s. After the tenant buildout is complete, the center will be home to nearly 2,000 employees and will serve as the company’s global technology and e-commerce hub.

Located at 100 West Worthington Ave., the property is located 7.3 miles from Charlotte Douglas International Airport and 13.3 miles from the University of North Carolina at Charlotte.

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
‣ Bohler
‣ Lee & Associates
‣ Lument
‣ NAI Global
‣ Walker & Dunlop

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