It has been a while since I have written a blog for D CEO, and I have been giving it a lot of thought as I want it to be relevant as well as informative. My last article was a prediction that Covid would last three to six months and all would go back to normal. I missed that one by two years! All the prognosticators are predicting gloom and doom for the office market recovery. From day one, I have believed that in the end, we will go back to using office space pretty much as we were before Covid. I don’t think hoteling or working from home works. Having a collaborative environment to go to at the office is so important. We are social creatures, and we do our best when surrounded by like-minded people with similar backgrounds who are focused on the same goals. My issue with hoteling is there is no sense of place. No pictures of the kids on your desk. You’re not sitting in an environment you are accustomed to around people you are used to being with. Hoteling has you getting your belongings from a locker and sitting in a workstation or place that isn’t yours. In my opinion, there will be companies that try hoteling but most will fail.
Let’s discuss what I think has changed that I think will stick long term.
With less density, parking ratios will be reduced. I think most new buildings built will have parking ratios of 3 to 4 per thousand square foot leased. The days of 6 parking spots per thousand are over. Amenities will become the tool to lure people back to the office. You will see heavily amenitized buildings will lease up quicker at higher rental rates. Amenities will have to create a better working environment like indoor/outdoor spaces that allow collaboration, high-quality food options, and more of a hospitality feel when you enter the building. Amenities that make you want to be there and help you enjoy your work day more and allow your team to be more productive. The days of putting greens and bocci ball courts are over.
Walkable buildings that allow great food and service options without having to get into your car are going to be the buildings of choice. I think a non-walkable heavily amenitized building will also work if done with all the options I have listed previously, but they must be well done in the right visible locations.
It will take time for all of this to work itself out. There is a considerable amount of vacant office space in Dallas, and many companies will downsize or reduce their space by 15 to 20%. They will try work from home a few days a week, even have some functions work from home permanently. The migration will continue to the Sunbelt, as companies are going to continue to relocate to Dallas. The incoming companies will reduce the vacancy problem, but I think we are in for a few years of adjustment before the office vacancies go back to pre-Covid numbers. Commodity office space that’s not walkable will be the hardest hit. They will lease slower at much lower rents. I would be a seller of that type of product. Tenants will continue their flight to quality and will happily pay higher rents for the better environment. Over the long term, Dallas will continue to win, but it will take a bit longer than most people think. I never heard the word recession for years until the last few weeks. The risk is real, and it will be hard to avoid, but in or out of recession, Dallas is the place to be!
Bill Cawley is chairman and CEO of Cawley Partners.
