Office Buildings: Navigating out of the Bermuda Triangle. 🤔
Tenants are fundamentally reevaluating ‘why’ they need office space, how much space they ‘need’ and what kind of buildings they ‘want’ to be in. 👇
A thread 🧵 … 👇
#realestate #markets linkedin.com/posts/davewald…
Tenants are fundamentally reevaluating ‘why’ they need office space, how much space they ‘need’ and what kind of buildings they ‘want’ to be in. 👇
A thread 🧵 … 👇
#realestate #markets linkedin.com/posts/davewald…
2/.
‘Best in Class’ and ‘Flight to Quality’ are being redefined.
The race is on to find the new ‘formula’ to attract and retain office tenants.
The winners will survive.
The losers will be converted, abandoned or demolished.
‘Best in Class’ and ‘Flight to Quality’ are being redefined.
The race is on to find the new ‘formula’ to attract and retain office tenants.
The winners will survive.
The losers will be converted, abandoned or demolished.
3/.
‘Work from home’ is here to stay.
Employees and management like it because it improves their quality of life.
Owners like it because it reduces fixed operating costs without reducing productivity.
‘Work from home’ is here to stay.
Employees and management like it because it improves their quality of life.
Owners like it because it reduces fixed operating costs without reducing productivity.
4/.
No one knows for sure where tenant ‘use’ / ‘need’ for office space will settle out. It currently varies from about 45% to 65%.
It’s looking like the gross need for office space will end up ‘rebalancing’ at a national ‘average’ of about 65% of what it has been for decades.
No one knows for sure where tenant ‘use’ / ‘need’ for office space will settle out. It currently varies from about 45% to 65%.
It’s looking like the gross need for office space will end up ‘rebalancing’ at a national ‘average’ of about 65% of what it has been for decades.
5/.
That’s a big problem, since the break-even point for most office buildings is about 65% leased with rent paying tenants.
And, break-even doesn’t work.
That’s a big problem, since the break-even point for most office buildings is about 65% leased with rent paying tenants.
And, break-even doesn’t work.
6/.
So, as tenant leases expire and office building rent sinks below operating costs, office buildings will gradually descend into the real estate version of purgatory.
That brave new world will have office buildings fighting a Darwinian ‘winner take all’ battle for tenants.
So, as tenant leases expire and office building rent sinks below operating costs, office buildings will gradually descend into the real estate version of purgatory.
That brave new world will have office buildings fighting a Darwinian ‘winner take all’ battle for tenants.
7/.
It is a battle that will have binary outcomes of winners and losers.
Close won’t count.
There just won’t be enough tenants to go around.
It is a battle that will have binary outcomes of winners and losers.
Close won’t count.
There just won’t be enough tenants to go around.
8/.
Winning requires attracting a sufficient number of stable tenants to ensure long term positive cash flow.
The losers will be permanently trapped in negative cash flow purgatory.
Winning requires attracting a sufficient number of stable tenants to ensure long term positive cash flow.
The losers will be permanently trapped in negative cash flow purgatory.
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