There are many unknowns for commercial real estate and the future of the office sector on the other side of stay-at-home orders. Each company and industry is impacted differently, and tenant requirements are evolving. While every tenant and owner needs to accommodate safety protocols, employee comfort levels, and reactions widely vary and remain unclear. Even though the pandemic’s long-term business implications remain to be seen, we see some opportunities emerging for office occupiers.
Recently, Martin Pupil in Stream’s Greater Los Angeles office explored the questions we should ask that challenge convention and provide a longer-term view of what the future of office may look like. Here, Randy Cooper discusses where opportunities may lie in the future of office development.
What are the biggest unknowns for real estate?
COOPER: Right now, the biggest trend in the office sector seems to be everyone wondering what the future holds in light of COVID-19. While the mandated work-from-home orders this spring were the correct and required response—many of us struggle with transitioning back to the office while others struggle with being out of the office for so long. Generally, people have grown frustrated with all aspects of the impact the virus has on their lives.
Conflicting articles and perspectives support the argument that working from home has increased productivity. On the other side, just as many report that productivity, while at the beginning of the outbreak, was high, has now slipped dramatically. Every organization is impacted differently, but any company that depends on innovation, thought leadership, collaboration, and working in teams are currently experiencing the impact of work-from-home scenarios and limited face-to-face team interactions.
What remains to be seen is what the long-lasting impact of working from home scenarios will be. Will companies need less space due to more remote employees? Will they need more space because of social distancing? Will there be more “hoteling” despite additional costs of heavy cleaning required? Once there is an approved and administered vaccine, will things go right back to “normal”? There are no expert answers to rely on in this area, only people’s opinions and projections. For now, the demand for space has wavered, to what extent over the next few months remains to be seen.
What kind of development activity do you expect to see for the remainder of this year?
COOPER: Some developers are pausing, and some are moving forward. It is unclear if developers will launch a true spec development office project in this environment. Most consider it reasonable to pause new developments through the end of the year to monitor how things naturally progress through the rest of the summer and fall.
If I were developing an office building in today’s environment, I believe a prudent development option would be to build an office building in the suburbs, with a very high parking ratio that bucks the trend of ridesharing. Providing good quality construction, coupled with efficiency, would be a wise derivative from a typical multi-tenant office building. Multiple separate entrances could create semi-private access for tenants. Separate and dedicated tenant restrooms, fewer public and shared spaces—such as conference rooms and workout facilities—and a larger focus on outdoor space are attractive options for occupiers in the current environment. A low rise three-story, tilt-wall building with a heavy dependence on stairs or escalators, would provide easy tenant access, and elevators in multiple elevator lobbies would allow for social distancing.
Currently, companies are increasingly seeking to control their entrances for health and safety purposes. They are limiting their employees to their specific policies, not to those of other neighboring tenants. For the short term, more traditional and inward-focused spaces with internal breakrooms, conference rooms, more spacious furniture layouts, and self-contained areas in multi-tenant, will be attractive to tenants and should lease well.
Where do the greatest opportunities lie?
COOPER: In the short term, I believe we will see a more disciplined and measured response from the development community.
The greatest opportunities are likely in existing mixed-use developments like Cypress Waters, CityLine, and Legacy, or land near to those developments that already have the infrastructure in place, such as hotels and retail. In this type of location, a developer could provide office products with access to nearby amenities. Still, unlike past requirements, they don’t necessarily need to be pedestrian accessible, just proximate to the property.
I also believe we will see an increase in relocations to the Dallas-Fort Worth area once the pandemic subsides. Political unrest and disagreements with state and local officials on their response—coupled with preexisting tax situations, high cost of living, and other factors—have attracted companies to Texas in the past will again, with increasing frequency.
The ability for firms to house employees in their own campus or building, at a lower cost and in a tax and business-friendly area, will bode well for all of Dallas-Fort Worth. Investments in land, in the path of progress, are anticipated. Having the ability to purchase solid assets as they become available, will make for smart investing. While the pandemic’s length and impact remain to be seen, we are confident that investment and development opportunities will continue in the short- and long-term.
Randy Cooper serves as the Managing Director of Stream’s office tenant representation division in the greater Dallas market.