Studley EVP Joe Learner says that the economic cataclysm of recent years has changed basic office market precepts: how much office space is needed per corporate worker, what it takes for a market to reach supply/demand balance, and what makes a building valuable.
1) DOING MORE WITH LESS
Tenant space is contracting as staffing shrinks, alternative work arrangements are made, and more compact furniture systems are used. There’s less individual space (about 165-200 SF per person versus 250 SF a few years ago) and more collaborative space.
2) STUBBORNLY HIGH VACANCIES
Corporate downsizing and efficiency gains are adding supply, so even as employment grows, CBD vacancy levels persist at high levels of 15% or more. In general, suburban markets are lagging with vacancies in the 20% to 25% range.
3) WELL-CAPITALIZED LANDLORDS
Such owners can offer concessions that lead to effective rents that can be 50% to 75% lower than the ’05 peak rates. Therefore, to determine the value of a building, look at: location, quality of construction and amenities, and the nature of the capital stack.
Hear more from Joe at Bisnow’s Chicago State of the Office Market, April 24 at The Trump International Hotel & Tower.