Office activity today can be boiled down to seven drivers, according to Hall Group Chairman and founder Craig Hall. During his keynote speech at Bisnow’s Big South Office event, Hall listed changes in financing, technology and information availability, office space density, parking demand, co-working and flexible leasing, amenities and wellness and sustainability as the major forces shaping today’s office market.
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1. Financing
“I put on my hat of 49 years here [in the real estate business], and I have never seen a cycle where the lenders have had the regulators keep such a long-term stranglehold on them,” Hall said.
According to him, if lenders were free to lend as they pleased, they would be making more loans than they are. Hall said this tightening of the purse strings is making it hard for newcomers to the market to get the funding they need for their projects.
“In 2007, I could build a building at Hall Park with an 80% construction loan, and I would have lots of banks that would want to give me 80%. Today, I have to kind of scrape around to find anyone willing to do 60% and [Hall Group is] successful in that market … [for] the poor person who is new in the industry and does not have a track record of 49 years, that is tough,” Hall said.
2. Technology and information availability
The information available to real estate professionals has completely changed the way the business works, according to Hall.
“Many cycles ago we did everything by gut … that world has changed,” Hall said.
Today, office market moves live and die by the data.
3. Office space density
Hall said the standard density ratio used to be three people per 1K SF, but now, it can be as high as seven or more people per 1K SF. Hall said the drastic increase in this metric means a decrease in demand for many markets around the nation. Despite this, Hall said demand remains healthy in Dallas.
4. Parking Demand
Parking can consume up to 25% of an office project’s construction budget, according to Hall. He thinks the market has reached its high point in parking demand and that going forward, demand for parking will fall at an alarming rate.
“It is ironic because your tenants are going to come to you, and they will want five or six spaces per 1K SF. I am saying to you, in five years, half of those [spaces] will be vacant,” Hall said.
Hall said this will be the result of people opting for alternate forms of travel and the impending tide of driverless cars.
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5. Co-working and lease flexibility
Hall said the co-working market is going to grow dramatically, and as a result, he is incorporating co-working spaces into some of Hall Group's newer developments, such as Hall Arts. Along with the increase in demand for co-working spaces, Hall said many companies are seeking shorter, more flexible lease terms.
“[This] is going to change the whole way we as an industry look at tenant finish out and how we structure our leases,” Hall said.
6. Amenities and live-work-play
The race for talent is driving tenants to dish out the big bucks for amenity-heavy office developments within desirable areas.
“The whole game here is recruitment and retainment of talent; and amenities … really [do] matter,” Hall said.
7. Wellness and sustainability
According to Hall, wellness and sustainability are a huge factor for tenants making leasing decisions. He said tenants are seeking wellness and sustainability conscious spaces and with LEED certifications becoming nearly standard, “well buildings” have emerged as the new frontier in the realm of wellness and sustainability.
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