CCP Commercial Office Digest

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.

"While we haven't seen significant losses in our office portfolio to-date, we are reserving for the weakness that we expect to play out"

Banks are increasing reserves, resulting in the continued tightening of debt capital for real estate, particularly office. Reuter’s covers big banks’ statements on preparing for real estate defaults here.

“Even Zoom Is making people return to the office”

At the start of the pandemic, the tech industry was quick to embrace flexible work, which was enabled by the industry’s own products, but many of those companies are now requiring employees return to the office. Read the New York Times’ reporting here.

“Distressed office properties and related loans are in a state of limbo, frozen without any investors who in the past would have scooped them up at discount prices”

Distressed office struggles to find buyers, which bolsters our belief that in the search for needed liquidity, owners are going to have to sell their better assets first. Read more here.

“It is no longer OK to say that we can do an ice cream social. People want more to convince them to return to the office. They want a reason to be engaged with their buildings. The status quo is no longer cutting it for tenants.”

Property management teams that can presents a property as an innovative workplace can help building owners recruit and retain tenants in this challenging environment, leading to optimized asset performance. An EVP and regional operations manager with JLL discusses the “hotelization” of office here.

Charts We are Talking About

A decline in demand for office space has been accompanied by a shift in tenants’ preferences toward high-quality space. From 2020 to 2022, rents and demand for Class A space grew more quickly than those for Class B space in many major US cities, as evidenced in the chart below. While some tenants are downsizing to save money, others are paying more per square foot to provide attractive space to their employees.

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]