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.

“Hybrid work may be here to stay – but February’s office foot traffic data appears to indicate that companies and employees are still feeling out the ideal balance between RTO and WFH.”

YOY, February 2024 office visits were up 18.6% on average nationwide according to data from Placer.ai. While nationwide visits to office buildings are down 31.3% in February 2024 compared to February 2020, office visits in cities like Miami or New York are significantly closer today to the 2020 baseline, -9.4% and -14.5% respectively.

“Prime economic rent, which is computed by multiplying asking rent by market occupancy, stands 14% above 2018 levels and near the 2020 peak. In contrast, economic rent for Class A buildings, which have borne the brunt of the occupancy losses, are down 10% since the pandemic radically changed office cultures and companies began trading up to higher quality space.”

Prime office buildings (defined by CBRE as assets that command the highest rents and represent the principal concentration of major occupiers) almost always have lower vacancy than their Class A counterparts, however today the spread has widened as tenants are increasingly eschewing commodity buildings in favor of best-in-class office space. View the data from CBRE here.

“Building owners have an opportunity to collaborate with tenants to reshape office design around shifting work preferences.”

A Forbes opinion piece highlights some predictions in office space trends including the growing importance of a building’s brand and greater amenitization.

“For balance sheet-constrained lenders, the ability to amend and extend loans could also diminish over time. “

The Financial Times reports on recent data visualized by Goldman Sachs noting the amount of maturities that have been pushed into 2024 as lenders have thus far agreed to “extend and pretend.” However, it’s unlikely the extensions continue for banks that are beginning to feel balance sheet pressure.

Charts We Are Talking About

With demand for high-quality and differentiated office assets intensifying during the pandemic, highly amenitized buildings are expanding their outperformance against the broader market, particularly those that offer enhanced gathering spaces and prioritize wellness. See more from JLL here.

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