This is our final C2 Voice of our submarket series. A summary of the key takeaways from the last 6 weeks:
— Commercial Real Estate is always cyclical. Office is VERY cyclical.
— Office is in the middle of a very huge shift in how it is being used. When all is said and done, from the start of COVID when everyone went home, to the day the office market will once again be robust, could be an entire decade lost. The bright side is that some companies are starting to require 5 days in office. Read more about this here.
— There is still opportunity in office for the right owner (with deep pockets), buying the right building (Class A) at the right price (today substantially below replacement cost), and hiring the right leasing team (C2 of course).
What is going to happen over the next decade? Here are our final forecasts:
— The war for talent is still growing. The pool of workers is shrinking. Technology will have to replace some of these workers because there are simply not enough.
— AI will make an impact on how companies use their office space. We don’t know how yet, we just know it will. The C2 Voice will be covering this topic as it evolves.
— We will figure out what occupancy vs. vacancy truly is. As workers normalize flex schedules and companies create standard operating procedures.
— We will see a fair amount of office get repurposed. Not as much as publicized, but a fair amount.
— We will see more office get demolished. If there is no need for more Class B or C offices. In fact, there will be a lot less demand. We will see the value of Class B & C buildings come down to land for whatever repurpose is contemplated.
— We will continue to see Class A be the office product of choice for users. The war for talent is not going away. Office space can and will be used as a recruiting tool.
— We will see years of downward pricing pressure on office buildings as we go through this cycle. The most pressure will be on Class B, while quality Class A will hold its ground. High construction prices for tenant improvements will help inflate rates and hold values.
— Regional Banks are shrinking, making loans harder to get. There will be almost no office loans nor new construction for at least the next 3 years.
— Lenders and borrowers who want to blend and extend will not be able to hide over time. There will be a reckoning at some point. Why? Because the market will not rebound quickly enough for the extensions to work.
— More manufacturing jobs will create more office jobs. Click here to read about it! This is HUGE for us. Arizona has become a great place to manufacture and these jobs bring additional office jobs. IF there is one great big bright spotlight for future office, this is it.
— There is a need for Class A office and by the end of the next decade we will see office become an investment of choice for institutions looking to acquire quality office with stable rent rolls.
If you want to take a wild ride, buy commercial real estate office buildings. 😊
If you want experienced guidance in your office space requirements or leasing up your office building, Coppola-Cheney will be here for the years to come working daily in the market. In 10 years, we will mark our 50th year in the Metro Phoenix office market.
A final note, for 40 years, my team and I have been focused on one thing: Building relationships that last. I can forecast with complete certainty that our approach will never go out of style nor will we ever compromise our commitment to relationships.
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