Office Real Estate Winners and Losers in 2023

The Messenger ^

[FarCenter]

Plagued by vacancies, office landlords are battling perceptions of empty buildings and financial loss. However, not all office markets are created equal — and many are still seeing success, as we will point out below for 2023.

The pandemic has caused a reversal of what areas of the country are central to business operations as employees have transitioned to remote work and companies have relocated to other states. In mid-November, the average weekly occupancy across 10 metros was 50%, according to card swipe access data of 2,600 buildings in 138 cities by Kastle Systems. But when examining individual markets, that percentage can vary greatly.

For example, 38% of office space is occupied in the San Francisco area on an average weekday. In Houston, the average occupancy is 60%.

As some employers enforce office mandates, while others pull away from leases, those occupancy rates will change — impacting vacancy rates that landlords rely on.

[FarCenter]

Due to the length of leases, companies have not yet rationalized their office space rentals to match their actual occupancy needs.

[Dilbert San Diego]

Will we see a crash in commercial real estate?

As leases expire and are not renewed, or companies renew for rental of less office space than before, the rental income to the owners of the buildings will be reduced.

And many building owners depend on the rental income to make their mortgage payments on the properties.

Then there’s the issues of big cities being impacted if there are fewer office workers in those offices everyday. If office workers are not in the city, they aren’t there spending money going out to lunch or patronizing businesses in the city.

[who_would_fardels_bear]

I'm wondering if malls might make a comeback. If the malls provided better security, then it would be easier to defend a bunch of stores in one building than up and down an open street.

For example, as soon as a store is robbed, all of the exits could be electronically shut. If there are security on site then they can quickly move to the location of the theft and confront the robbers.

At first, this might lead to some dangerous confrontations, but if the robbers see that they can never get away with stuff, even if the justice system lets them free, they will end up just being hassled with no reward.

They would then move on to less protected targets.