Panelists look toward May and June to predict immediate future of the office market
In the face of the COVID-19 crisis, current indicators suggest that South Florida’s office market is weathering the immediate storm. That’s according to panelists participating in NAIOP South Florida’s recent inaugural virtual roundtable Office Market: Report from the Trenches.
More than 100 participants logged on to the Commercial Real Estate Development Association’s roundtable, moderated by Darcie Lunsford of Butters Realty & Management who is also president of NAIOP Florida. Office market experts Mark Corlew of Grover Corlew, Greg Martin of Avison Young and Barbara Black of JLL candidly discussed immediate industry concerns and their perspectives on the office market trajectory for the remainder of 2020 and beyond.
The panelists agreed that while more than 85 percent of tenants were able to meet rent obligations in April, with retail establishments as the hardest hit during the crisis, they will learn more as rents come due in May and June.
Among smaller business tenants, “the immediate panic has eased a bit for those who have received governmental loans,” said Mark Corlew, principal of Grover Corlew. “Tenants are now looking to us to assure employee safety as the economy begins to open back up, so we are working diligently to add infrared light to HVAC systems, provide extra janitorial services for common spaces and add more safety signage throughout our buildings.”
Greg Martin, principal of Avison Young, also pointed out that building operational expenses will inevitably rise and questioned whose responsibility it would be if there was an outbreak, tenant or landlord, to clean up resulting biohazards.
“There hasn’t been a hard stop in terms of office transactions,” added Barbara Black, managing director of JLL.
The panelists recognized, however, that new deals will likely be delayed as businesses take a wait and see approach while the healthcare industry works to find a vaccine. An uptick in office vacancies, an increase in subleasing, a dip in rental rates and more tenant requests to reduce rents are also expected in the coming year, the extent of which is still unknown. While financial lenders continue to be accommodating, there was some concern that any change in that sentiment could become more problematic for the industry.
“The office market was in good shape before the COVID-19 crisis with low inventory, and lenders were not overexposed, which isn’t something we have experienced prior to past recessions,” noted Corlew.
All seemed to concede that while some economic decline will be inevitable in the short-term, the long-term outlook for the industry remains cautiously optimistic.
When asked about the opening of the economy and getting back to work, Black pointed out that with schools closed and many workers finding they can still be productive working from home, she anticipates a reduction in tenant space needs.
“As businesses gear up to come back to work, density issues will be at the forefront, meaning lunchrooms and social areas will likely remain closed, conference room chairs will be removed and spaced according to social distancing measures, and while additional sanitary supplies will be supplied to workers, many will opt to continue to work at home,” said Black.
When asked about the future of office design, the group agreed that the current crisis will likely play out faster than the lengthy process of development and construction.
Martin ended the panel with a heartfelt thanks to property managers, engineers and janitorial staff who continue working every day in masks in order to keep the commercial real estate industry running during the COVID-19 crisis.
Those interested in participating in future virtual roundtable discussions can register by visiting naiopsfl.org/events. Once registered participants will receive a separate email with Zoom meeting information.