Commercial Real Estate Experts Optimistic About Strong Leasing & Positive Trends

Some of the top names in commercial real estate recently sat down with Bisnow and Yardi’s Arjun Rao to discuss market changes and responses prompted by the COVID-19 crisis. While the news wasn’t all sunny, those with a negative attitude toward the industry might be surprised by many of the positive projections that were noted during the seminar.

The Panel

Moderated by Arjun Rao — Yardi’s director of commercial global solutions, and the person in charge of new CRE platform CommercialEdge — the panel was made up of three Texas-based commercial real estate professionals:

  • Marijke Lantz,senior vice president at the Billingsly Company, who describes herself as involved in “all food groups” of commercial leasing and property development
  • Paul Wittorf, executive managing director at Transwestern, who provides office leasing services in Houston and Dallas, as well as national full-service commercial real estate services
  • Sara Terry, executive vice president at Colliers International, who is based out of Dallas, Texas, and is the head of agency leasing

During the discussion, the three spoke openly and extensively about the challenges of leasing and developing commercial real estate during a pandemic, as well as the innovative ways they’ve seen companies continue to provide services.

The Current Situation

“Our platform [CommercialEdge] has [seen] a huge increase in tenants looking for space,” Rao noted, which came as no surprise to the panelists. In fact, Wittorf said that, from March through September, he’d “never seen so many reasons in my career for a tenant to hit pause on a decision.”

Wittorf provided several factors to back up his statement, including a lack of financial visibility and an increase in people working from home. However, he also pointed out notable exceptions to the rule, such as Microsoft and Facebook, both of which are making big moves into additional commercial space.

Specifically, the deals Wittorf sees are occurring in assets. And, while he hasn’t seen a dip in rental prices throughout his area, he has seen lessors offering better terms — one of many reasons to be optimistic overall.

Meanwhile, Lantz said her company had completed two office structures just as COVID-19 hit. And, although tours of the properties immediately ceased, one property is already 100% leased and the other has also had activity.

To Wittorf’s point, Lantz described a situation in which one large tenant was ready to move forward — only to change their mind with plans to keep employees working from home indefinitely. In the end, the tenant came back and signed after all. According to Lantz, this type of start-and-stop process is relatively common at the moment.

Changes in Negotiation Tactics

As far as negotiation tactics go, Terry said that smaller, mid-size companies are still renting, but that they are discussing shorter renewals and are more “term-minded,” overall. Conversely, larger companies are looking for extra flexibility — and are willing to pay for it. To that end, Wittorf added that the lack of clarity in the market leads to the need for flexibility, while Lantz noted that commercial tenants that need flexibility should be asked to pay for it.

Trends: What’s Changed & What’s Stayed the Same

The pandemic has also accelerated some trends while decelerating others. For instance, Terry explained that, 10 years ago, the average density in commercial real estate was about four people for every 1,000 square feet. However, in recent years, even Class A offices have been looking at five to six people per 1,000 square feet, with some companies going up to eight to 10 people within that size of space.

Clearly, this will become a significant challenge when employers begin bringing their employees back to the office as there won’t be enough space for all of them to maintain safe social distancing. But, according to Terry, there are several advantages to moving this trend in the opposite direction, including reduced strain on building systems.

Likewise, Lantz said some clients that are developing new properties are considering a hub-and-spoke option. She noted that this layout would allow for better social distancing than 10-story buildings with elevators, which are unable to get employers, clients or visitors to their destinations safely and directly.

Furthermore, Lantz’s research shows that 32% of people in Los Angeles are back in the office and 34% are working on-site in Dallas — compared to less than 12% in New York City and 18% in Chicago. She believes that part of the reason for such a wide discrepancy is related to the taller buildings in the cities that have lower percentages of people back in the office.

Consequently, Lantz foresees that new properties being developed would be no higher than three stories and would include additional features like elevator buttons that clean themselves and multiple entrances to each building. Granted, this is much easier for a company that is building from the ground up as opposed to the cost of retrofitting existing office space.

The Work-from-Home Experiment

Initially, some employers wanted their employees to work from home indefinitely. But, many quickly pivoted to looking at less-expensive cities in which they could do business. For instance, Wittorf mentioned that companies expected working from home to be more successful than it has been, and that both employers and employees alike have admitted that the lack of collaboration and a core location has taken a toll.

According to Terry, the current environment is especially daunting for young workers fresh out of college, who may have difficulty training or being mentored over video. As a result, Lantz anticipates more fluid employees who can work from many places — rather than workers who only work at home or in the office.

Commercial Leasing Companies Up for the Challenge

Meanwhile, companies are getting creative to generate business under the current circumstances. For example, Terry described an increase in virtual tours and a significant spike in social media ads. But, she cautioned companies to be sure that they’re telling a story on social media — and not just flooding the market with generic, unmemorable information. She added that social media can be incredibly helpful in repositioning a location that has experienced changes due to COVID-19.

Rao summarized the webinar when he said, “National companies are being more cautious and smaller tenants [that] need the space more are willing to consider more properties because of it.”

For more detailed information on current commercial real estate trends, watch the full webinar.

Eliza Theiss

Eliza Theiss

Eliza Theiss is a senior writer reporting real estate trends in the US. Her work has been cited by CBS News, Curbed, The Los Angeles Times, and Forbes among others. With an academic background in journalism, Eliza has been covering real estate since 2012. Before joining PropertyShark, Eliza was an associate editor at Multi-Housing News and Commercial Property Executive. Eliza writes for both PropertyShark and CommercialEdge. Reach her at [email protected]