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- Remote Working Could Hurt CRE’s Attempt To Rebound
- The Future Of The Office Market Remains Uncertain
- Industrious Thrives As Competitors Struggle
Remote Working Could Hurt CRE’s Attempt To Rebound
Central business districts are hurting and it will be several months, if not years, before we see if wide vaccine distribution helps these areas rebound.
In New York City, leasing fell to its lowest this century with only one in ten office workers making their way back into Manhattan after lockdowns.
According to a January Fortune survey in collaboration with Deloitte, 75% of CEOs have stated they’ll need less office space moving forward. In a similar survey from back in September, that number was at 76%.
At the same time, only 4% of CEOs from the most recent survey said they’ll need more office space.
This indicates that many CEOs are preparing for remote working to outlast the pandemic, which could be bad for the commercial real estate industry that is desperately trying to bounce back.
“Thousands of small businesses have already or will go under,” said Neel Kashkari, president of the Federal Reserve Bank of Minneapolis. “That rolls up into the commercial real estate market and rolls up into the banking sector,”
In anticipation of these losses, CoStar is predicting that distressed sales could top $650 billion by 2025.
The Future Of The Office Market Remains Uncertain
The future of the office market remains largely uncertain as occupancy remains low, but high rent collections have kept it stable.
According to Spencer Levy, chairman of Americas research and senior economic advisor for CBRE, the office market has seen a few significant outcomes throughout the pandemic: multi-tenant properties with short-term leases are suffering, while properties with corporate tenants are trading hands.
The dislocation of offices is largely market driven with central business districts and dense cities seeing large dips in occupancy.
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“CBD markets will take longer to come back than drive-to markets with low density,” said Levy. “The window of opportunity is longer in big cities than secondary, drive-to markets.”
Levy suggests that office tenants in smaller and secondary markets should negotiate deals before deals in major metro areas.
Additionally, Levy added that he doesn’t believe remote working will be a widely adopted trend and that “most office use is a need not a want.”
However, he also stated that there will likely be a spike in the hub-and-spoke model as companies seek more flexibility and less risk in their office takeup.
Industrious Thrives As Competitors Struggle
Despite the unpredictability of the office industry, Industrious recently opened a 17,000 square feet space in New York City’s Carnegie Hall Tower.
This is the third location the flexible office firm has opened in the city since the beginning of the pandemic, with plans to open two more locations over the next few months.
Additionally, the company plans to open part of its 100,000 square foot space at One Penn Plaza by the end of the year.
Currently, Industrious operates over 100 workspaces that span over 3 million square feet and will expand that growth by an additional 1 million square feet this year.
The company has also revealed it would be taking over spaces that have been abandoned by their competitors, such as WeWork. The company cites its landlord-management agreements as being the reason it has been able to stay afloat throughout the pandemic.
“We partner with landlords on these spaces, so there’s not a high fixed rent component,” said Doug Feinberg, director of real estate at Industrious. “When you’re in a downturn or you’re in a pandemic, your unit might not be performing as well, but in our case, we share on the upside, and we share on the downside.”
Industrious’ business model is similar to the hotel industry, where the tenant occupying the space gets paid a management fee and shares the profits with landlords.
Doing so allows Industrious and their landlords to work together to navigate the challenges of operating through a health crisis, according to CEO Jamie Hodari.Share this article