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Demand for New Office Product and the Value of Space

Even employees who love working from home are being tempted back to the office as companies upgrade to new buildings or renovate their workspace to make it appealing.

What is tempting them back?

Demand for New Product

Leasing statistics across the U.S show that best-in-class office space is leasing faster and at higher rates across multiple industries.

It’s no secret that office demand was hit hard by the Pandemic, with negative office absorption recorded across the country. Fortunately, the figures started to shift in Q12022. Stream’s data indicates that leasing interest and commitment is focused in one area: Class A+ and Trophy new office product.

The flight to new or improved assets is not a new trend, but it has been accelerated by the Pandemic.

Employers of all sizes know they can increase interest in returning to the office by providing a great space to work, socialize, and that contributes to the company’s culture. With amenities, walkability and modernity top of mind, the benefits are democratized; from the C-suite to the new hires—everyone will benefit.

The biggest firms know that maintaining their culture requires their talent to be in the office. This paradigm shift means the leverage and influence—especially for retention and recruiting—sits with employees. Decision-makers must consider not only how to get people back to the office, but how to ensure they’re engaged once they get there.

The most established or prestigious building in the market may be shunned in favor of the newest product with all the bells and whistles, or the best-in-class creatively renovated buildings, adapted to compete with new supply. With many occupiers considering only best-in-class real estate, continued rental growth is expected and a speculative wave of office construction to meet demand, is already under way with assets like RiverSouth (Austin), The Quad (Dallas), or 1771 N Street (Washington D.C.).

The Value of Space

What occupiers are looking for—quality, amenities, walkability, connectivity, retail, wellness, convenience, and connectivity for hybrid working—is driving up rents (and values) in the Class A+ and Trophy buildings.

A report from CommercialEdge indicates that investor interest in quality assets has widened the gap in average sale prices across asset classes since 2020. Class A+ buildings, on average, cost $50 more per square foot (15%) in the fourth quarter of 2021 than 2019, while Class B buildings have only increased $6 per foot (6%) over that time. This is in line with substantial rental rate growth in Class A+ and Trophy buildings—which is expected to continue in line with demand.

For older inventory, options may be to offer flexible terms, flexible space, or simply to discount rents to avoid vacancies. However, savvy investors are focusing on the future of the market. That means quality new developments and opportunities to renovate existing assets to keep pace. Plus, in the strongest locations, existing space may be prime for complete redevelopment.

The market is rapidly changing, and that creates opportunity for those who are paying attention.


About the Author

Matt Wieser, is an Executive Vice President in Stream’s Dallas office and co-leads the market’s Office Leasing Team. Matt leads marketing and leasing efforts for a number of high-profile office properties, and supports the expansion of Stream’s leasing and management portfolio, helping identify strategic investment and development opportunities for the firm and its clients.

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