Tag: Workplace ReEntry

Office Vacancy Rates Rise as Remote Work Arrangements Linger

Posted on by Trey Jackson

Recent media reports show the U.S. commercial real estate office market continues to adapt to pressures from remote work, increased vacancy rates, and difficulties with price discovery.

Building Value and Rent

  • On March 26, the Wall Street Journal cited CoStar data showing that average U.S. asking office rents rose despite lower office demand and more empty space.
  • David Bitner, the head of global research for Newmark told the Journal that if rents were cut to fill empty space, it “would significantly reduce the appraised values of their buildings. This in turn could lead to a covenant default on their loans or at minimum would make it harder for them to refinance.” 
  • The Journal noted that the value of office buildings will reset after owners and lenders manage to restructure mortgages or sell distressed properties. Another major influence on office rental rates is the adoption of new hybrid workplace arrangements by businesses that require less space. (Article: “The Office Market Is in Turmoil. So Why Are Rents More Expensive?”)
  • According to an MSCI index, the average value of office buildings in central business districts fell nearly 41% from July 2022 to the beginning of this year. (Wall Street Journal, March 26)
  • The New York Times reported on March 14 about the options facing municipal officials as nearly $3 trillion of outstanding commercial real estate debt is coming due by 2028 while tax revenues from commercial properties drop. The consequences of remote work and a post-pandemic shift in the use of the built environment are leading city officials to assess lower tax revenue assessments and consider policy changes to incentivize commercial-to-residential conversions, cutbacks to local services, or raise taxes.

Vacancy Rates Increase

  • Commercial Edge’s National Office Report reported on March 22 that there was a noticeable adjustment in demand for office spaces in the first two months of this year, partly due to the ongoing shift towards remote and hybrid work models. These challenges were exacerbated by higher interest rates and ongoing economic uncertainties that put pressure on upcoming maturing loans.
  • The report also shows that the national office vacancy rate is 17.9 percent, up 140 basis points year-over-year. It also stated that San Francisco’s vacancy rate climbed 480 basis points year-over-year to 23.4 percent.

Government Remote Work

Real Estate Roundtable President and CEO Jeffrey DeBoer
Real Estate Roundtable President and CEO Jeffrey DeBoer spoke at the PREA conference last week.
  • For public buildings, the influence of return-to-office trends on federal employees was reflected in the $1.2 trillion government funding package recently signed by President Biden. (Reuters, March 23 | Roundtable Weekly, March 22)
  • The fiscal 2024 measure included six new requirements for agencies to report data about federal telework, return-to-office trends, and use of federal office space. (Federal News Network, March 21)
  • Roundtable President and CEO Jeffrey DeBoer has consistently emphasized that federal policies promoting remote work undermine the health of cities, local tax bases, and small businesses. The Real Estate Roundtable has urged President Biden and national policymakers to end government policies that encourage remote working arrangements for federal employees. (RER letter to President Biden, Dec. 2022; RER letter to Senate, April 2023)

Mr DeBoer, speaking last week in Nashville at the Pension Real Estate Association (PREA) conference, noted that office vacancy rates are a bit misleading given the significant number of aging and obsolete building that do not functionally meet modern tenant demands. The Roundtable continues to urge incentives to encourage the conversion of these buildings to much-needed housing.  

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Healthy Workplaces Policy Coalition Launches With Roundtable’s Backing

Posted on by Trey Jackson

Healthy workplace with employees at table

The “Healthy Workplaces Coalition” launched this week with the backing of The Real Estate Roundtable to support federal policies that promote health and safety in offices and other work environments. (Coalition news release and 1-pager, May 25) 

Roundtable Support 

  • More than 40 national organizations, industry leaders and trade associations will collaborate on federal policies to support the health and well-being of employees, customers and the public in workplaces and across the built environment.
  • The International WELL Building Institute (IWBI) and ISSA–The Worldwide Cleaning Industry Association lead the Coalition. The Roundtable and Building Owners and Managers Association (BOMA) International join them on the Steering Committee, and the American Hotel & Lodging Association (AHLA) is among the Coalition’s founding members.   
  • “Revitalizing downtown communities hit hard by the pandemic depends on getting America’s workers back to the office place – and supporting the mom-and-pop restaurants and stores that serve our central business districts,” said Jeffrey D. DeBoer, President and CEO of The Real Estate Roundtable. “Policies that support investments to improve indoor air quality and other healthy building strategies will not only accelerate the return to the workplace, but improve the long-term resiliency of our nation’s built environment.”
  • The Healthy Workplaces Coalition launch announcement cited a recent Honeywell survey, which showed 72% of office workers worldwide worry about air quality in their workplaces’ buildings.
  • Back-to-the-workplace issues were the focus of a Roundtable virtual town hall in March with U.S. Department of Labor Secretary Martin Walsh and Roundtable Chair John Fish (Chairman and CEO, Suffolk). Town hall participants Fred Seigel (President and CEO, Beacon Capital Partners) and Owen Thomas (CEO, Boston Properties), emphasized the importance of healthy building strategies as key measures necessary to prompt workers’ return to office environments. (Watch video discussion | Roundtable Weekly, March 18) 

Policy Focus logo - Healthy Workplaces Coalition

  • The coalition will support federal incentives and other policies that help businesses defray some of the extra costs they incur for heightened sanitization and safety practices prompted by the spread of COVID-19.
  • For example, the coalition aims to build support for legislation such as the bipartisan Healthy Workplaces Tax Credit Act (S. 537), introduced by Sens. Rob Portman (R-OH) and Kyrsten Sinema (D-AZ), backed by The Roundtable since the height of the pandemic. Companion legislation pending in the House (H.R. 1944) is sponsored by Reps. Stephanie Murphy (D-FL) and Darin LaHood (R-IL).
  • The Portman-Sinema bill would provide a refundable tax credit against payroll taxes for 50 percent of the costs incurred by a business for adhering to health guidelines, as well as support for training and education on the prevention of virus transmission.
  • Similarly, the recently introduced Airborne Act  sponsored by Rep. Don Beyer (D-VA) would provide a tax credit for businesses to conduct indoor air quality assessments, and create a voluntary certification program for CRE owners that meet heightened ventilation standards. (Beyer news release, May 9) 

Reopening businesses and the country is an important priority in The Roundtable’s 2022 Policy Agenda: “Connection, Commitment, and Collaboration – Supporting Federal Policy Through Experience and Innovation in 2022” – and will be a focus of discussion during The Roundtable’s all-member Annual Meeting on June 16-17 in Washington. 

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CDC Summarizes “Re-Opening America” Initiatives; EPA Provides Building Water Quality Checklist; Roundtable Board Member Interviewed on Office Return

Posted on by Trey Jackson

CNBC Squawkbox interview with Owen Thomas

The Centers for Disease Control and Prevention (CDC) this week released a comprehensive summary of its initiatives and tools to enable fuller reopening of communities and businesses, as all 50 states are taking steps to return to a “new normal” after months of COVID-19 shutdowns and stay-at-home orders.  (CDC’s “Activities and Initiatives Supporting the Covid-19 Response” and NYTimes national map, May 21)

Meanwhile, the U.S. Environmental Protection Agency (EPA) recently issued an information resource and checklist to address water quality in buildings as they ramp-up operations.  EPA recommends that owners and managers take proactive steps to minimize water stagnation in plumbing systems during temporary shutdowns or reduced operations, prior to building re-population.  See:

Additionally, Roundtable Board Member Owen Thomas (CEO, Boston Properties) was interviewed yesterday on CNBC’s Squawkbox  (photo above) about the pandemic’s impact as employees return to office environments and how cities may compare to suburbs as major work hubs of the future. (CNBC interview, May 21) 

  • “We have a pandemic underway; there will be a gradual return to the office.  But I do think companies will be actively using their offices in the long-term,” Thomas said.
  • “I also hear from customers that remote work is not an acceptable replacement for the in-person interactions that happen in the office space. The ability to mentor younger employees. The spontaneous collaboration and creativity that occurs and also the culture that companies develop – it’s very difficult to do it when we’re all on Zoom and Webex.” (Thomas CNBC interview, May 21)
  • Roundtable members who have recently been interviewed about workplace return strategies and technologies include Immediate Past Chair Bill Rudin, Roundtable Member Scott Rechler and others. (Roundtable Weekly, May 15)

Two industry reports issued this month also address return-to-work guidelines and COVID-19 operational contingency plans:

  • A CBRE analysis of 203 companies’ operations across the globe – “ReEntering the World’s Workplaces” – shows many companies have implemented return-to-work guidelines stricter than local government requirements  (CBRE news release, May 15)  / (GlobeSt, May 18)
  • A Deloitte survey of 100 senior financial service institutions’ (FSI) executives with responsibility for crisis management and business continuity planning reveals that at least half of the respondents are developing COVID-19 operational contingency plans spanning at least the next three months. Part of the complexity around re-opening has to do with the scale and scope of FSI real estate. (Deloitte, May 15)

The Roundtable’s Building Re-Entry Working Group continues to meet weekly to address issues associated with the restarting of the economy. 

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