In your space – Observations on the Market/
working in today’s business environment
October 11, 2021 – The Office Worker Pushes Back
In 1776, when Thomas Jefferson penned the Declaration of Independence and Adam Smith his classic Wealth of Nations, both men envisioned a new Republic in which each man owned a plot of land and possessed a skill, working both the hours and to extent of their choosing. This was considered the best life that man could want or expect, a life of freedom of choice and self-determination.
Both men disliked how salaried positions infringed on this freedom, both from the perspective of the dependency of the worker on his employer and the set hours required by this employment but also in limiting the extend of a marketable trade that might be learned or even lost in the process.
Today, we read articles reporting that as many as “82% of the workers are considering changing jobs to find an employer with a return-to-work plan that fits their needs”, one may wonder if this freedom might not have finally arrived.
The workforce had already been destabilized prior to covid. Many service providers were offering part time skilled labor to provide for services, the need for which was not adequate to justify a full-time employee. In keeping with the Jefferson model, these workers were often providing similar services to multiple employers, largely on the service providers’ schedule.
People like WeWork further weakened the traditional market by offering corporate America short term leases (less than 1 year in many cases) on large blocks of office space. This did not engender a sense of long-term commitment amongst their workforce which began job hopping long before this and our most recent work-from-home/covid phenomena came into being.
This is affecting everyone who leases office space whether they want to acknowledge this or not. The biggest facility cost has always been personnel, turnover making up a major portion of that cost. How to manage this effectively?
As a large part of our business relates to office users, we speak daily with the business owners who are faced with the necessary decisions related to this.
Some of our clients maintain that they must have an onsite workforce. If they insist on this, they may initially have some turnover. They may have to pay others to stay. Most will not want to work in small cubical spaces. These companies will have to expand.
Offices will have to be a bit more employee friendly. Pool and ping-pong tables may become more typical office or building features.
They will have to sort through and find stable employees that have a convenient commute to their location. There is a certain group that does not want to or like working from home, people who feed off of the energy of group dynamics that cannot be found on Facetime, but this group cannot define the demographics of an office work force long term.
For most employers, their location itself will need to be set for many years to come. This will probably mean that they will want to be in a location where a multitude of owners have multiple options so that there will more likely be a competitive market environment, and they don’t find themselves working for the landlord as many destination retailers ultimately do if they do not own their buildings.
Many will reduce space. This will be the majority. Many of the very large users (90% of the space leased in the market to 10% of the companies) will be able to do this by reducing the number of floors that they lease. Theirs will be the easiest task but the one that has the greatest potential for upsetting large numbers of existing employees who will probably be spooked by the change itself.
Smaller offices (10% of the space, but 90% of the companies leasing space) will typically have to move to reduce their space. This will be costly and will require a great deal of flexibility as construction costs are at all-time high.
Landlords in many cases will either reduce rates or sell their assets to owners who will.
Landlords are already anxious to offset uncertainly by appealing to tenants for longer term leases. This will likely result in a greater percentage of these with tenants showing more concern for the ability to downsize in order to reduce space to accommodate the developments space use and in the workforce and long-term liabilities. The capacity to subdivide and also possibly expand, in some respects copy the co-working operators like WeWork, will be critical to effect economic long term lease commitments.
As you can’t run a business without workers, some Jeffersonian principles might be in order.
August 30 , 2021 – Surges Resulting from the Virus Will Effect Real Estate for the Next Decade
Questioning the motivation of many of the writings surrounding the real estate world, especially the commercial one, these are our candid observations.
Overall our business is very good. In the office market, everyone is dealing with their requirements differently, some with little change; but, with construction costs being the highest in history, it makes renovation of existing facilities and the impact of this on landlords and tenants and deal economics much more complicated than at anytime that I can recall in many years in the business.
Real demand is impossible to gauge as many users are waiting to see what everyone else is going to do. Large subleases have in many cases been removed from the market. We suspect that, in most cases, the cost/savings benefits were not seen as adequate to go through the disruption that this would cause these companies and their workforces as many of these companies are struggling to retain employees who are tempted by job offers that are more compatible with their locational and work-from-home preferences.
The owners of commercial real estate that have a high percentage of office properties will most likely have to struggle for several years into the future. It is difficult to imagine that this will not move beyond just additional concessions, e.g., free rental, to affect the actual base rentals for these properties.
This would be the case with the retail industry as well as many properties are being repurposed to address large vacancies and the introduction of 3rd party logistics retailers into the market. Folks like Walmart and Target has been competing with Amazon for much of this business. Simon and Brookfield’s recent acquisition of JC Penney suggests that another player will very soon enter that fray. The pandemic has only served to strengthen this element of the retail industry.
Not surprisingly, Simon has recently commented on making elements of their centers into distribution hubs. They clearly see their centers taking on a broad range change in the years ahead. They should be the beneficiaries of much of this.
In this same vein, industrial real estate of which we do a fair amount is very strong with “last mile”, close in properties hibernating into almost a retail/industrial nature. Not only have the 3rd party logistics operations had a lot to do with this; but, frankly, many cities have at the same time run out of close in real estate with most of the desirable properties already having been developed. This undoubtedly will result in some additional repurposing in the coming years.
On the residential front, as you may have noticed, large investors are buying into single family housing portfolios to rent. Whole communities are being built only for this purpose. One example of this is a 200 home project being built up north of Atlanta near Lake Lanier with the specific purpose of renting these homes.