December 5, 2021

Acqua NYC

Fit And Go Forward

COVID-19 Isn’t Crushing Office Space Demand, Say Office REITs

That’s due in part to the office format many of these companies plan to employ in the future. While they’ll allow employees to work remotely, they’ll also follow a hybrid model of remote and in-person office work. The in-person component will consist of onsite training, critical meetings, and culture-building onsite events.

Meanwhile, instead of dedicated office space, remote workers will have access to a shared workspace environment at company offices. As a result, these companies will need office space to accommodate this model.

Expecting a return to normal

Brookfield noted leasing activity was reasonably healthy during the third quarter, despite the headwinds from COVID-19. Kingston wrote, “While new leasing activity at our buildings has been slower than normal, there continues to be a premium placed on modern, newly developed space and we have been encouraged by an increase in activity in markets such as Asia, where office utilization rates and tenant activity returned close to normal in the third quarter.” The company leased 644,000 square feet in the quarter, at rents 13% above those expiring in the period.

Further, the company has an active leasing pipeline, including being in advanced negotiations with a global tenant to anchor its 431,000-square-foot 1 Leadenhall development in London. Kingston stated, “This tenant is reaffirming its long-term office requirement in the city at rents consistent with what we were anticipating pre-pandemic.”

The CEO also noted that in New York, which has been hard hit by COVID-19, “we have observed a meaningful uptick in tenant touring activity over the past several weeks, with corporate headquarters requirements of over 2 million square feet currently looking for space in the market.”

Given these positive trends, Kingston proclaimed: “We have strong conviction that companies will return to the office largely as they did prior to the pandemic. The demographic forces that were driving increased white-collar employment, urbanization, and demand for modern, high-amenity office buildings have not gone away — some of these merely remain on pause temporarily.”

Brookfield isn’t the only office landlord optimistic about its post-pandemic future. For example, Owen Thomas, CEO of leading office REIT Boston Properties (NYSE: BXP), discussed what he sees ahead for offices on the third-quarter conference call, stating: “On work from home, we remain convinced that successful companies will work in person. It is increasingly clear to our customers and other business leaders that there are significant gaps in conducting business on a fully remote basis in terms of creating and maintaining culture, creativity, and productivity, as well as onboarding, training and development.”

Meanwhile, leading Manhattan landlord SL Green Realty (NYSE: SLG) is seeing similar things from its tenants. Steven Durels, executive vice president, director of Leasing and Real Property, stated on the company’s third-quarter call that:

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