Traditionally corporate real estate costs represent 9% to 12% of a total company cost base. But as concepts like workfrom home and spoke and hub gainingtraction, Joe Brady, CEO Americas for TheInstant Group, a workspace innovationfirm, sees an opportunity for some firms tobring those costs down to 5% to 6%.
Brady says they can do this by relying on
spokes for smaller office gatherings. The
main office hub, which is likely in a central
business district and has boardrooms and
huddle rooms, will be dedicated to
“engagement and collaboration.”
“With this idea of the hub and spoke, if
you’re reducing expensive real estate in
the prime core business districts, the
urban cores, and you’re moving out to
first string suburban, you’re going to see
some, some cost savings,” Brady says.
Brady thinks a lot of this cost savings willcome from better utilization of space.
Before COVID- 19, Brady says officedensities were moving toward 100 squarefeet and under. “I think we’re going to seethat bounce back,” he says. “So companieswill likely reduce their space, but not asmuch as we think in the downtown areas.
That space will just be converted around
collaboration and whatnot.”
These reconfigurations aren’t cheap
though. Brady says companies can either
restack in place and fund the renovations
themselves. If they’re toward the tail end
of their base lease, landlords can expect
requests for a tenant improvement allow-
ance with their landlord. Otherwise, they
may relocate and start a new lease and
negotiate a tenant improvement allow-
ance with their new landlord.
The tenant improvement allowanceallows companies forego putting a majority of their own capital into a renovationproject. They can then reinvest that backinto their core business function.
Companies will also see some benefitsfrom a higher speed to occupancy out ofthese flexible workspaces.
“They can move much more quickly,”Brady says. “Oftentimes when you’re thinking about relocating an office, it could takesix, nine, or 12 months. But space can deliverin four to six months. So if you think aboutthat increased speed occupancy, you’re notpaying double rent elsewhere while you’rebuilding out the space.” —Les Shaver
Alot of funds are lining up to make a play for distressed assets. If they don’thave the patience to wait for things tocycle through banks and servicers, MarkFoster, attorney at Snell & Wilmer, saysthere is one group that may soon be readyto make a deal.
The best opportunity for purchases isgoing to be with owners who are older, over65, and who have done a good job of building a pretty good portfolio, Foster says.“There is a crazy amount of uncertainty,and they may want out. So they’re willing tosell it [their asset] at a discount to get out.”When they sell, Foster thinks they’llprefer a buyer that can move quickly.“They want to sell to somebody who is ableto close a deal quickly,” Foster says.“They’re willing to sell it if dips in valuebecause they’ve owned it forever.”
THESE OWNERS ARE
READY TO SELL THEIR
THE NEW ECONOMICS OF OFFICE SPACE
So far, the apartment market has held up relatively well after COVID-
19 hit. But Jake Reiter, president ofVerde Capital, does see some issues onthe horizon.
In higher-end, mixed-use apart-
ments, the retail and hospitality por-
tions could drag down building perfor-
mance, according to Reiter. “The hotel
piece, the We Work piece or the retail
piece could be distressed.”
With some smaller apartments, the
retail owner could also be the building
owner. “It could be a travel agency [on
the first floor],” Reiter says. “The owner
of the building may also own the busi-
ness. If that business is closed and there
is not a huge amount of multifamily
upstairs, the closing of the retail is not
immaterial to the overall economics of
the building,” Reiter says.
These are opportunities that Verdeis monitoring, looking for ways to
POSE TROUBLE FOR