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The Wild Office Market Ride

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W. Allen Morris Headshot

The Wild Office Market Ride

While some companies have gone out of business in the past year and a half due to the Covid-19 pandemic, others have rapidly expanded. The result: a wild office market ride.

 

As CEO of the Allen Morris Company, a large commercial real estate firm in the southeast where the ride is particularly jumpy, these days I am most often asked the following questions:

 

  • Are employees going back into their offices?
  • Are businesses leasing new office space?
  • Are businesses leasing more or less square footage?
  • Are companies still undecided?
  • What will the post-Covid-19 office look like?

Here are my answers…

 

Are Employees Going Back into their Offices?

Yes and No.

 

At our Alhambra Towers offices in Coral Gables, tenants have taken different tracks. Some have permanently closed their offices and asked their employees to work from home. Others have reduced their office space as part of their negotiations to extend their long-term leases.

 

Bloomberg reported that BlackRock pushed back its plan to have employees return to the office before October. The world’s largest asset manager sited concerns about the Delta variant even with vaccinated employees, especially those with dependents at home who are currently ineligible for vaccination. Unvaccinated employees have not been allowed back and those that are vaccinated and back have been told they should begin to “re- acclimate” to office work only once they felt comfortable in doing so. In a company memo, BlackRock said that 50% of its U.S. staff have been back in the office in the past 30 days.

 

Companies like J.P. Morgan announced a plan to return their employees after Labor Day, but with the arrival of the Delta variant, they and others have had to delay the mandatory return until likely January 2022. In Gensler’s 2020 Workplace Survey, 70% of workers expressed wanting to work in the office most of the week with new health- measurements implemented, such as assigned workspaces and more space for social distancing. The other 30% of workers preferred flexible work arrangements, meaning their office spaces could be used for other functions when they are working remotely.

 

This social trend towards office space usage affects everything else in the office world. For instance, in New York City, the new key indicator of bankers, lawyers, and investment executives flooding back to work in their offices is increased the new indicator of bankers, lawyers and investment executives flooding back to work in their offices is increased cappuccino sales (Bloomberg Business).

 

 Are Businesses Leasing New Office Space?

Yes.

 

Across all our office building projects in Orlando, Miami, and Atlanta, the Allen Morris Company has experienced new major office lease commitments since many companies are still in expansion mode.

 

In Florida, IWG, the largest office-sharing company, is growing again. Blackstone Group has moved a large portion of its offices to Downtown Miami from New York City with the leading global investment business purchasing two buildings within MiamiCentral, a mixed-use development, totaling 330,583 SF for $230 million as they gear up to hire 200 employees for their back-end operations. Starwood Property Trust of Starwood Capital is moving from Greenwich, Connecticut to a new 144,000 SF office building on South Beach in late 2021. ShiftPixy, a company designing and developing software for business recruitment, has moved its headquarters from Irvine, California to Brickell Key. Icahn Enterprises has moved from Manhattan to Milton Tower in Sunny Isles Beach occupying 23,299 SF of an office tower they built. In West Palm Beach, Goldman Sachs has made a major move from New York as it shifts some of its asset-management unit to South Florida. On our end, we recently announced the new 200,000 SF Nexus at Creative Village office building in Downtown Orlando and have already received significant pre-leasing commitments.

 

Bloomberg recently reported on the moves of Goldman Sachs Asset Management and others, like Voloridge Investment Management, into West Palm Beach, Florida. In a Bloomberg interview, Michael Weaver, director of business strategy at Voloridge, explained, “A lot of people that are making the move down have figured out that they can enjoy New York on their own terms. That seems to be a common thread among the finance people who are now in Florida: We want to continue to be in the business but don’t want to pay the implicit and explicit costs anymore (of New York City).” (Bloomberg Wealth).

 

In Atlanta, the market has seen major moves with Google leasing 500,000 SF and Microsoft announcing its 90-acre acquisition in West Midtown, Atlanta to create a regional headquarters for 15,000 employees. This has resulted in other major companies seeking workspace in our newly opened Star Metals Offices, like IWG’s Signature by Regus, the multinational workspace provider’s most high-end product in the IWG collection. We are currently negotiating with multiple tenants whose requirements would not only fill our building, but three times over. So yes, office leasing is hot in the South.

 

On the national scene, Google has just announced it is purchasing St. John’s Terminal, a Manhattan office building for $ 2.1 billon, which the Wall Street Journal describes as “one of the clearest signals yet of big technology companies’ growing appetite for office space, even as these firms embrace remote work…Tech’s soaring real estate demand has helped offset office space being dumped by large financial firms, from JPMorgan Chase & Co. to HSBC Holdings.” They quote William Floyd, Google’s director of public policy and government affairs, who states, “We know that our employees, in order to really be happy and productive, need to collaborate. Because of that need to collaborate, we’ve been investing more and more in office space.” (Wall Street Journal).

 

 

Are Businesses Leasing More or Less Space?

Yes and No.

  

From the examples listed above, one can clearly see how companies are leasing large blocks of office space – and that is exciting news! For me, it is equally exciting to see how several major corporations are re-locating or expanding even outside of the south.

However, as I have already mentioned, many companies already in place are also renegotiating accommodations with their landlords to reduce their office space in exchange for longer term commitments. The reason for this is because:

 

A. They need more space due to the current and projected economic growth post Covid-19.

 

B. They need more space for social distancing that allows present and future safety.

 

C. They need more space as interior plans shift back from shared workspace tables to private offices.

 

D. They need less space as companies shift to flex-office hours where employees work remotely one to three days per week or only come into the office for group meetings.

 

We estimate the net-effect of all of this to be a net-reduction for the average business of plus or minus 15% square footage.

 

Are Companies Still Undecided?

Yes and No.

 

The Covid-19 Delta variant caused some companies to hesitate before finalizing their relocation commitments in order to reassess the risks. Most companies that need to secure office requirements for five to ten years ahead are now proceeding to finalize their leases and new space plans. It is a reminder that even with the best business forecasting available to us, we always have to make our major business decisions with incomplete and imperfect information, like a commander in battle.

 

I am reminded that in our years of developing office buildings for major corporations such as AT&T, FPL, IBM, GMAC, Unisys, and the Federal Reserve Bank to name a few, they have almost never been able to accurately project their expansion needs.

 

 

What Will the Post-Covid-19 Office Look Like?

The Same and Different.

 

Most post-Covid-19 offices will continue to include shared worktables, but with more spacing, better cleaning protocols, and either permanent or temporary space dividers. Private offices have not disappeared. Building improvements now include better clean air standards with improved quality filters or UV sanitation lights, more entry touchless access to offices, elevators, common areas as well as touchless fixtures in bathrooms.

New premium features include access to outdoor meeting and dining spaces.

Other companies are creating technology solutions for sharing desks and workspaces. Bloomberg Technology reported that “workers returning to the Paris offices of two of the biggest French banks are set to find something new under the desks. Societe Generale SA and Natixis are placing sensors under work stations, using technology similar to that in parking garages to manage office occupancy under new flexible work plans…the aim is to allow staff to see on an app which desks are free (and clean) when they come to the office.” (Bloomberg Technology).

 

At Alhambra Towers and all our other office buildings, we are also securing WELL Building certification for premium air quality as part of our renovations and professional building management protocols.

 

At Alhambra Towers and all our other office buildings, we are also securing WELL Building certification for premium air quality as part of our renovations and professional building management protocols.

 

 

After 63-years in this business, the Allen Morris Company can confidently predict our forecast will not be flawless. The commercial real estate market will always be a wild ride – it’s just a bit wilder at the moment.

 

   

 

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