CCP Commercial Office Digest

4/23/2024

Commercial Office Digest

Callahan Capital Partners is a real estate private equity firm focused exclusively on the origination, acquisition and management of high quality office assets throughout the United States.

Here's a glimpse into what we are reading to shape our view on the evolving office market.

“For the people who need to rely on debt markets, they are going to feel pain. And for the people who have capital to deploy, they will have opportunity,"

Some real estate executives see the prospect of interest rates staying higher for longer as a factor that could lead to an increase in transaction activity and create opportunities for investors. Read more here.

“With the tech industry pulling back on expanding their office portfolios and government offices slow to enforce return-to-office policies, law firms stepped up to account for roughly 9% of all office leasing activity last year in the country's largest legal markets”

While the average law lease is typically far smaller than the larger leases from the tech industry (which had been known to lead leasing volume) the legal industry’s willingness to commit to space for the long term underscores the emphasis law firms are putting on return to office. Read more here.

“Total capital raised [for real estate] in 2023 marks a 52% decline from the 2021 peak when a combined $207.7 billion was raised across 790 real estate funds.”

The lack of investment in real estate in 2023 is likely due to a combination of LP capital restraints due to lower distributions, and the reallocation of traditional real estate investments into other “real asset” classes including energy transition, infrastructure, and digital assets. Read more here.

“In 25 Manhattan buildings that signed at least three leases for $100 per SF or more last year, foot traffic is approximately 10% higher than the rest of Manhattan’s office stock.”

Many employers are upgrading to amenity-rich, higher quality office spaces to lure employees back to the office. Higher visits to these offices may suggest this strategy is working. Read more from Bisnow here. 

Charts We Are Talking About

CBRE Econometric Advisors published a report making the case for the attractiveness of developing “Prime” office space in certain markets, which is defined as class A+ or trophy space. One of the more interesting charts included in the report shows the disparity between market vacancy and Prime vacancy across a number of markets. The largest disparity was in Chicago with only ~6.5% vacancy for Prime assets, and ~21% Market vacancy. Read the report here.

Feel free to share this newsletter. New subscribers can sign up HERE to be included on future Digest editions.

Questions? Thoughts? Want to connect? Please reach out to [email protected]