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In the midst of soaring life science developments and adaptive reuse projects, office development had the slowest recovery across real estate asset classes in 2021.
Over the last year, we saw some of the highest vacancy rates in history, especially in cities like New York and Los Angeles. The Wall Street Journal mentioned, “The vacancy rate downtown rose to 19.6% in the third quarter of last year, compared with 15.7% one year earlier, according to the Downtown Center Business Improvement District” in LA.
Although the market hasn't looked promising with record low leasing numbers, industry leaders remain hopeful for a return to the office. Teams are grappling with balancing work from home productivity and safety in determining the future of the workplace.
Here are three reasons why big developers remain optimistic.
Dissatisfaction With Work from Home
After almost two years of working from home, many teams are seeing decreased productivity and itching for the social interactions associated with working in person. Boston Properties president tells Commercial Observer, “I think with many workers today, there’s pandemic fatigue… It’s very anecdotal, but you hear that more and more of the employees want to come back for the camaraderie, for the learning, the training that goes on in the office.”
There is no replacement for the relationships an in-office work environment facilitates. Many companies are unwilling to sacrifice the productivity and work culture being in office promotes and thus are doing everything they can to make the office a safe place.
Government Action Being Taken to Reduce Crime and Homelessness
There has also been growing concern around leasing spaces in major cities while seeing increased crime rates and a surge in homelessness in cities like San Francisco. The subway assaults in New York City are another cause for concern, rightfully so.
However, we are seeing government officials taking action to reduce concern. New York Mayor, Eric Adams, and Governor, Kathy Kochul, assembled an interstate task force to reduce gun violence and general crime. Either way, some of those on the cusp of getting back to city living are starting to rethink if it’s a good idea.
According to Commercial Observer, San Francisco mayor Lonon Breed also has plans to bring in more policies to promote returns to the city. These policies indicate a positive response for companies looking to bring their employees back into these major big cities.
Good Signs from Big Companies
We are also seeing larger companies investing in new office space, signaling a promising return of office demand. According to Brookfield and the Wall Street Journal, Adidas just leased 107,000 square feet in a new Brookfield Asset Management redevelopment, the largest lease signed in downtown Los Angeles in more than one year.
Industry leaders are ultimately staying optimistic about the return of in-person working and are expecting a turning point in office real estate development in 2022.
Brookfield senior vice president, John Barganski told the Wall Street Journal, “Despite the popularity of remote working, Brookfield is betting that office space will continue to be the primary location where work takes place in the future. – ‘We know they’ll be back,’ he said.”
Owen Thomas, CEO of Boston Properties, told Commercial Observer something similar– that “he has confidence that a full recovery is in the near future as employers seek greater work efficiency and pressures mount for local elected officials to lower the crime numbers.”
Although both of these developers have a significant stake in office development, they inspire hope that office development is not a lost cause, like many believe it to be.
Tag(s): Real Estate Development
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