Coming Back from SIP and an Office Market Update

Coming Back from SIP and an Office Market Update

April 18, 2020 0 By Chris

With the Corona Virus pandemic, we have seen a lot of change in the past 5-6 weeks. With the hope that we will be coming back to the office soon, I wanted to pass along some info that office tenants may find useful.

Coming Back to the Office

What is going to be the new normal when we return? I listened to a conference call earlier this week with a major furniture brand and they mentioned that we might see some changes in the workplace that resulted from the pandemic.

  • More People Working From Home. The first item mentioned was more people are likely to work from home in the future. The recent events have forced people to work from home and set up an office and it is thought that will be a lasting trend for the future.
  • New Cleaning Standards. Secondly, they said that there will be new cleaning standards for office buildings. It is unsure what exactly may change but everything from marking cleaned surfaces with something identifying them as clean to implementing a cleaning schedule during the work day and several other ideas were mentioned.
  • Shift Work. Third, the concept of working shifts was brought up. We may see that employees will come back in shifts to increase social distancing.
  • Office Furniture Changes. The final area was focused on changes to office furniture and how it may be configured. Obviously, with office footprints becoming more dense, people are closer to each other and that is trying to be avoided so we may see that trend reverse a little and we may also see more hard surfaces on furniture in the future.

Office Market Update

The other update I’d like to pass along is a quick update on the office market. These comments are general and not specific to just the East Bay.

  • Deal Volume. Since the beginning of the year, we have obviously seen the volume drop way off.
  • Deal Term. Another trend that we are seeing is shorter deals because tenants aren’t sure about the future and it is very common to see a short extension to hopefully buy some time for the markets to stabilize so a longer term decision can be made.
  • Rent Deferrals. It is very common to see leases amended and rents to be deferred in part to a future date. These deals are very common and do vary but a very middle of the road example would be to defer half of the rent for 90 days (i.e. pay half of your rent each month for 3 months) and then make payments of 1/12 of the amount of the deferred amount over the next twelve months.
  • Asking Rents. We believe that we will see a decrease in rents by 2-6% and the recovery depends on a lot of factors. The recovery variable has to do with how much longer we have to stay in place, whether or not we see another outbreak later this year, how soon we get a vaccine, etc. The immediate drop in rents may be short lived or it may drop further depending on the factors mentioned above.
  • Investment Sales. I read that our first quarter investment sale volume was the highest since 2016. Our economy was healthy and strong and now we are dealing with some setbacks. The forecast is that 2020 will see a slight decline in pricing but I haven’t seen a reliable report saying that we can expect more than that so I will leave it at “slight.”

I am hopeful that May will be the beginning of our comeback. In the meantime, stay safe and if you have a lease coming up in the next 18-24 months, feel free to reach out with your questions, send me an email at ccrabtree@lee-associates.com, and we can arrange a video conference call and develop a strategy to deal with your unique situation. I look forward to hearing from you.