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What will happen to commercial real estate in 2022? It’s a trillion-dollar question, but the trends that seemed assured and certain just a few months ago are now in flux.
As much as everyone would like to move into a post-pandemic era — and despite progress in treatment and prevention — the virus and its impact are still relative.
The path forward for business leaders is complicated. There are new realities that cannot be ignored or avoided, and for many organizations the use of commercial office space is now in transition. At this moment it appears that the office market in 2022 will be shaped by several emerging trends.
- Companies are reconsidering business plans and approaches.
- The worker shortage is real.
- Amenities are central to return strategies.
- The work-from-home potential is limited.
- The return of the commercial office market.
CNBC’s Diana Olick joins ‘The Exchange’ to report on the return to office impact on real estate.
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The return of the commercial office market
By any standard, 2020 was a year of massive disruption. The federal government injected trillions of dollars into the economy in an effort to prevent an outright depression. Such efforts as additional unemployment assistance, $1,200 checks for millions of taxpayers, a higher minimum wage, large-scale security purchases by the Federal Reserve, and the Payroll Protection Plan (PPP) kept the country afloat. The results were impressive: In the first six months of 2020 banks received additional private deposits worth more than $2 trillion and at the start of 2021 mortgage rates reached a record low, 2.65%.
For commercial office markets, however, the initial reaction to the pandemic in early 2020 was harsh. In an environment without a vaccine or a full understanding of the virus, businesses moved workers home and placed operations online. Leasing and subleasing levels sharply declined.
But now times have begun to change. Offices are re-opening. Numerous safety protocols have been created, and many businesses have established vaccine and testing requirements. Amenities have been added, schedules adjusted, and workspaces reconfigured.
Workers, for their part, have begun to return. Kastle Systems, which uses access control data to track weekly office usage, shows both that activity levels in 10 major metropolitan areas lag when compared with pre-pandemic usage levels, but also that usage has risen significantly since the depths of early 2020.
As to businesses, many continue their commercial office investments either through leasing or ownership. The Commercial Cafe, using data from CommercialEdge, shows that in 2021 alone, at least eight markets have 4 million sq. ft. of new commercial space in their pipelines.
Tech companies have consistently been the majority of leases signed throughout the pandemic.
For instance, Google (Alphabet) — which now has 12,000 New York employees — has announced that it will soon close on its $2.1 billion purchase of the St. John’s Terminal. The Manhattan building will be part of the company’s Hudson Square campus, a complex with 1.7 million sq. ft.
On the West coast, in 2020, Facebook (META) bought REI’s newly-built corporate campus in Bellevue, WA., for $368 million, according to The Seattle Times. The paper reported that “Facebook, which opened its first Puget Sound office in 2010 with three engineers, now employs more than 5,000 local workers across 3 million square feet of space in dozens of locations in Seattle, Bellevue and Redmond, placing it neck-and-neck with Google for the title of the area’s largest out-of-town tech employer.”
What’s more, in December of 2021, Facebook (META) also leased 719,000 square-foot of tech space in Sunnyvale, California.
Or, consider Amazon. It is investing more than $2.5 billion in its HQ2 project in northern Virginia, just outside Washington, DC. The project includes construction of The Helix, a unique, cone-shaped, building. The company expects to create 25,000 jobs at the site during the coming decade.
Would these massive tech companies — companies with vast amounts of business data — spend billions of dollars on commercial office space if they intended to become largely work-from-home organizations? And, if the pandemic ebbs, isn’t it likely that offices will largely re-open, designs and functionality will evolve, selected employees will have greater time-and-place flexibility, and that commercial office space will once again enjoy strong demand?
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