“Even a dead cat will bounce if it’s dropped from a high enough altitude,” says an old Wall Street adage. Major economic signals reveal the office building industry is experiencing “a dead cat bounce.”
Sale prices for office buildings enjoyed a moderate bounce to the upside, following the financial crisis of 2007 - 2008. However, the recession and its legacy have vaporized an estimated 275 to 550 million square feet of demand for U.S. office space. While the carnage in the labor market has been slow to influence the office market, the aftershock is beginning to be felt across the country as tenants shed surplus office space.
This assessment comes from B. Alan Whitson, RPA, President of Corporate Realty, Design & Management Institute, and Chair of the Model Green Lease Task Force in a multipart series Office Buildings: The Dead Cat Bounce. In Part One of this series, Whitson zeroes in on changes in the labor market, how it affects demand for office space, and five trends to watch.
“Most pundits have been tracking ‘new unemployment claims’ as their indicator of choice,” says Whitson. “While this worked in past recessions, this time the key is the number of job openings. Before the recession, we averaged 4 million job openings a month. Since the recession ended, job openings have averaged 2.7 million a month. In contrast, layoffs are running 2.1 million a month slightly below the prerecession average of 2.3 million a month. With the economy short 1.3 million job openings every month, a major shake out in the office building market is occurring.”
Five trends to watch from Office Buildings: The Dead Cat Bounce - Part One:
1. Tenants are taking less space, signing short-term leases, and spending less on tenant improvements
2. At 17% vacancy nationwide, tenants are becoming more selective about the space and buildings they lease. Yet, landlords have the upper hand in some submarkets. Tenant that are willing to be flexible and creative can make can make great deals on great space
3. Well-informed building owners will get more creative about the product the offer – work environment vs. square feet
4. Look for an “Uber” class of office buildings to emerge, a combination of location, style, technology, and sustainability. Many 60s, 70s, and 80s era buildings have great locations, good architectural bones and maybe more competitive than some of the newer buildings given a smart upgrade to the skin, mechanical and electrical systems
5. While technology allows us to work anywhere, where we work is becoming more important
As the series moves forward, Whitson will address how these and other changes affect the design, construction, and operation of office buildings. The changing relationship between building owners and their tenants, the leases negotiated, and the types of office buildings tenants are seeking. The goal of the series is to identify the pitfalls to avoid and where to profit from the changes in the office- building marketplace. BD+C
Related Stories
| Sep 21, 2010
New BOMA-Kingsley Report Shows Compression in Utilities and Total Operating Expenses
A new report from the Building Owners and Managers Association (BOMA) International and Kingsley Associates shows that property professionals are trimming building operating expenses to stay competitive in today’s challenging marketplace. The report, which analyzes data from BOMA International’s 2010 Experience Exchange Report® (EER), revealed a $0.09 (1.1 percent) decrease in total operating expenses for U.S. private-sector buildings during 2009.
| Sep 21, 2010
Forecast: Existing buildings to earn 50% of green building certifications
A new report from Pike Research forecasts that by 2020, nearly half the green building certifications will be for existing buildings—accounting for 25 billion sf. The study, “Green Building Certification Programs,” analyzed current market and regulatory conditions related to green building certification programs, and found that green building remain robust during the recession and that certifications for existing buildings are an increasing area of focus.
| Sep 21, 2010
Middough Inc. Celebrates its 60th Anniversary
Middough Inc., a top ranking U.S. architectural, engineering and management services company, announces the celebration of its 60th anniversary, says President and CEO, Ronald R. Ledin, PE.
| Sep 16, 2010
Gehry’s Santa Monica Place gets a wave of changes
Omniplan, in association with Jerde Partnership, created an updated design for Santa Monica Place, a shopping mall designed by Frank Gehry in 1980.
| Sep 16, 2010
Green recreation/wellness center targets physical, environmental health
The 151,000-sf recreation and wellness center at California State University’s Sacramento campus, called the WELL (for “wellness, education, leisure, lifestyle”), has a fitness center, café, indoor track, gymnasium, racquetball courts, educational and counseling space, the largest rock climbing wall in the CSU system.
| Sep 13, 2010
Community college police, parking structure targets LEED Platinum
The San Diego Community College District's $1.555 billion construction program continues with groundbreaking for a 6,000-sf police substation and an 828-space, four-story parking structure at San Diego Miramar College.
| Sep 13, 2010
Campus housing fosters community connection
A 600,000-sf complex on the University of Washington's Seattle campus will include four residence halls for 1,650 students and a 100-seat cafe, 8,000-sf grocery store, and conference center with 200-seat auditorium for both student and community use.
