Preparing for 2024 in Commercial Real Estate. Is your team ready?

Hit the ground running

As we usher in the holiday season, savvy commercial real estate brokers and their teams are setting the stage for a triumphant start to 2024. Now is the opportune moment to fine-tune your strategies and ensure you’re ahead of the game come January 1. First on the agenda: a meticulous evaluation of your existing processes. Identify bottlenecks and inefficiencies, paving the way for a seamless transition into the new year. Simultaneously, it’s crucial to tie up loose ends on lingering projects, ensuring you enter 2024 with a clean slate.

 

While the festivities ensue, keep your focus sharp on the future. December is the ideal time to pinpoint potential prospects and devise a comprehensive plan on how to approach them in the upcoming year. Don’t be caught off guard—your competitors are gearing up to hit the ground running on January 1, and so should you. Delaying preparations could mean playing catch-up, putting you at a disadvantage. Stay one step ahead, invest in your success, and make sure your team is ready to embrace the challenges and opportunities that lie ahead in the new year.

 

What’s coming in 2024?

Commercial Real Estate Trends Across Asset Classes:

The commercial real estate landscape in 2024 is marked by diverse performance across asset classes. The office sector faces challenges, with a national vacancy rate of 19.2% in Q3 2023. While some older office spaces may become obsolete, opportunities arise for converting them into apartments or data centers. Industrial properties, especially cold-storage facilities, continue to perform well, but signs of softening emerge as post-pandemic demand wanes. Retail, particularly neighborhood shopping centers, is expected to shine in 2024, with steady performance and positive rent growth. Multifamily properties remain strong, although luxury apartments face decreased demand.

 

Industry Challenges and Opportunities Ahead:

Top concerns in commercial real estate include interest rates and rising costs. The bond market’s turbulence in Q4 2023 has raised uncertainty, but the chances of further Fed rate hikes have diminished. Rising construction costs and insurance premiums add to challenges, prompting owners to streamline processes. Despite obstacles, 2024 offers opportunities for investors. Cash optimization is crucial, and quick access to cash can capitalize on distressed assets. Affordable housing initiatives, proptech adoption, and energy-efficient upgrades present avenues for innovation and competitiveness. While the overall outlook for 2024 may be muted, staying vigilant and leveraging these opportunities will be key for success in the dynamic commercial real estate market.

Learn more and read the full report from JP Morgan here.

Finding solid ground amidst the challenges of dated technology and rapidly evolving commercial markets.

Change is often slow in the commercial real estate industry, especially when technology is concerned. The next year will be a pivotal time for real estate firms as they endeavor to reposition themselves in a landscape shaped by a myriad of challenges, necessitating a reevaluation of strategies and embracing innovative technologies. It’s becoming increasingly clear that the traditional status quo will no longer suffice in this rapidly evolving sector.

One significant hurdle many firms face is the accumulated burden of technical debt—a result of relying on outdated and inadequate technology and systems. The cost of this burden is steep, affecting both time and money and resulting in lost opportunities. According to a recent survey from Deloitte, a significant 61% of CRE (Commercial Real Estate) firms acknowledge that their core technology infrastructures still rely on legacy systems. However, nearly half of these firms are making strides to modernize their operations. This acknowledgment is the first step towards a much-needed transformation.

The pressing need for change represents a prime opportunity for CRE businesses to integrate new technologies. By scaling up their capabilities, these firms can better navigate the current economic challenges and emerge successfully from the broader fluctuations in CRE markets.

The pressing need for change represents a prime opportunity for CRE businesses to integrate new technologies. By scaling up their capabilities, these firms can better navigate the current economic challenges and emerge successfully from the broader fluctuations in CRE markets.

Embracing new technology is not a one-size-fits-all solution. Different aspects of the real estate business demand specific technological solutions. From marketing and sales to lease and asset management, property management, tenant engagement, investment management, finance and accounting, and even construction management, there exists a diverse array of technologies catered to streamline these functions. The success of a business hinges on its ability to identify and implement the solutions that best suit its specific needs, allowing for more efficient operations and enabling swift and effective capitalization on emerging opportunities.

The commercial real estate (CRE) industry is undergoing a major transformation, and technology is playing a leading role. To remain competitive in the coming years, CRE firms must embrace new technologies and modernize their operations.

The true cost of technical debt.

Many CRE firms rely on outdated and inadequate technology systems. This can lead to a number of problems, including:

  • Inefficiency: Legacy systems are often slow and cumbersome to use. This can waste time and resources for employees.
  • Lost opportunities: Outdated systems may not be able to support the latest trends and technologies in the CRE industry. This can put firms at a competitive disadvantage.
  • Security risks: Legacy systems are often more vulnerable to security breaches. This can put sensitive data at risk and damage a firm’s reputation.

Opportunities to incorporate new technology.

There are a number of new technologies that CRE firms can incorporate to improve their operations. Some examples include:

  • Artificial intelligence (AI): AI can be used to automate tasks, improve decision-making, and gain insights into market data.
  • Big data: Big data analytics can help firms identify trends, patterns, and opportunities that would be difficult to see with the naked eye.
  • Cloud computing: Cloud computing can provide firms with access to scalable and affordable IT resources.

Different technology solutions for different aspects of CRE.

Depending on what sector of commercial real estate your business serves, there are different needs that technology can address. From selling better and faster to smoother operations there is a place for technology in every CRE business.

Technology can be used to improve a variety of aspects of CRE operations, including:

  • Marketing and sales: Technology can help firms automate their marketing and sales processes, generate leads, and track their results.
  • Lease and asset management: Technology can help firms manage their leases and assets more efficiently and effectively.
  • Property management: Technology can help firms automate their property management tasks, improve tenant satisfaction, and reduce costs.
  • Tenant engagement: Technology can help firms improve their communication and engagement with tenants.
  • Investment management: Technology can help firms with investment research, portfolio management, and risk assessment.
  • Finance and accounting: Technology can help firms automate their financial and accounting processes, improve accuracy, and reduce costs.
  • Construction management: Technology can help firms manage construction projects more efficiently and effectively.

Solid ground in times of instability.

“Developments across the commercial real estate industry will likely be under the microscope for the remainder of 2023 and into 2024. How industry leaders choose to navigate the coming 12 to 18 months could be crucial in establishing a sturdy base of operations for the long term.”

No doubt, the future of CRE is uncertain. Today, we’re seeing the most successful firms reevaluating their technology needs and creating a solid foundation for the future by transforming their businesses to succeed amidst the rapidly changing CRE landscape.

Undeniable expertise. How Trilogy CRE has achieved continuous growth alongside client success.

In this edition of the OfficeSpace.com blog, we turn the spotlight on a real estate professional who has found that commanding market share and growing his business go hand in hand. We’re excited to showcase a remarkable tenant rep broker who has harnessed the power of Lead Connect to supercharge their real estate business. Through his dedication to every lead, Matt has not only grown his business but also transformed the way businesses, large and small, find their perfect commercial space in Arizona.

Join us as we delve into Matt’s success and explore how he has built a powerful business uniquely poised to grow and expand, even amidst the challenges of today’s commercial real estate markets.

Meet Matt Bustamante

Meet Matt Bustamante – owner of Maricopa County, AZ-based Trilogy CRE

Matt has been serving Phoenix, AZ, and beyond for the last 20 years, building his business by focusing on delivering outstanding service to every client, every time. It goes without saying that after 20 years, he has a long list of repeat customers, and the referrals continue to roll in, but in the midst of the challenging economic times of the past few years, his business has continued to grow rather than falter. I connected with Matt to discuss how he has navigated these challenges and learn more about how he has built one of the most powerful tenant representation businesses in Arizona.

 

Matt is a long-time Lead Connect customer, receiving inbound tenant rep leads from OfficeSpace.com in Maricopa County that he and his team of specialized brokers help in their “search, selection, negotiation, and occupancy of retail, office, and industrial space in the Phoenix Metro area.”

“I’ve been with you guys for three years now…[before], I was dumping thousands of dollars a month into advertising, and I was getting some leads from it, but then, that’s when I discovered [OfficeSpace].” 

Matt continues, “So I figured I’m spending a couple thousand dollars a month, even on the low end in the beginning, on advertising. Or I can spend [my advertising dollars differently] over here and get a better result. And you guys already had the SEO down, and that’s where I was lacking. So, instead of me funneling leads to other people and then taking a cut from them, I was just pursuing them myself.”

To clarify Matt’s comments – a subscription to Lead Connect starts at only $199/mo and, in most cases, is much more cost-effective than traditional lead generation or targeted advertising services in commercial real estate. Even better, Lead Connect delivers leads in real-time helping successful brokers like Matt engage leads in their markets faster.

 

All successful CRE pros know that inbound leads are essential for growing business alongside referrals and return customers and that often owning these leads is the key to success. I asked Matt how OfficeSpace.com has played a part in growing his business and his lead pipeline.

“Honestly, it came down to the volume of leads. I wasn’t able to obtain [more leads] without spending even more money to obtain the same amount of leads that you guys could give me.” Matt explains further, “So I just took them all in-house and just revamped everything. I realized I can do it better myself, so I just decided to work 20 to 30 hours more than I was already working to make sure that everything was handled properly.” 

Matt hits home that his focus is bringing the same level of dedicated service to every client is the foundation of his success. Being the exclusive tenant rep broker in Maricopa County has allowed him to grow his team and establish Trilogy CRE as the undeniable expert in the area.

“I just came to a decision, once I was going to get the entire territory exclusively, I would bring everybody in-house.  This would allow me to work with and further educate my team on the importance of customer service and refine the more intricate aspects of tenant representation.”

 

We continue discussing the growth of Trilogy CRE and how Matt has leveraged OfficeSpace.com to support his fast-growing business. “At first, the business from OfficeSpace was about a third of my total business. Now, I’m getting referrals from those clients that closed from OfficeSpace. These additional referrals aren’t directly attributable to OfficeSpace, but extremely valuable to our success.” He adds, “I’m a numbers guy. I look at where everything’s coming from, and it’s important. How do you grow if you don’t know where you come from, right?”

Continuing to discuss Lead Connect and how Matt utilizes the inbound leads, he says, “There’s a lot of value to what you guys bring. So, I just figured instead of trying to reinvent the wheel, I’ll just run with what you guys have because that’s what I was trying to do.”

 

To wrap up our conversation, I asked Matt what he feels is the most significant opportunity of being in the tenant rep space.

Without skipping a beat, he dives in, “That’s easy for me. First of all, you can’t be good at everything. I started out almost 20 years ago, primarily representing small mom-and-pop businesses, which continue to remain important to my success. These businesses are crucial to our economy and local communities.  These relationships built the foundation on which Trilogy has grown into national tenant representation for companies both small and large.  To this day, I have never represented a landlord.” He adds that he refers this business to earn income from the referrals rather than trying to spread his focus outside his expertise. “[This] allows me to concentrate on doing what I love and what I do best, which is tenant rep. “

 

By serving clients large and small, Matt confidently closes more deals than there are weeks in a year, and that number is growing as he continues to scale Trilogy CRE. He closes by stating, “Lead Connect has doubled the volume of leads that I have coming in from my existing personal book of business.”

 

At OfficeSpace.com, we’re proud to deliver valuable leads to commercial real estate professionals. Tenant rep brokers like Matt Bustamante are a testament to the necessity of tenant representation for businesses large and small. Matt has used his experience, along with inbound leads from OfficeSpace.com, to expand his reach and ensure he delivers the best client experience to Maricopa County and beyond. 

 

You can learn more about Matt and Trilogy CRE by visiting their website here – www.TrilogyCRE.com. 

 

Want to learn more about Lead Connect?

Are you looking to grow your inbound lead pipeline and become a trusted expert in your market? Learn more about Lead Connect from OfficeSpace.com here, or reach out to our team to get started.

4 ways tenant representation can help you unlock new opportunities.

The commercial real estate (CRE) landscape has evolved significantly in recent years, presenting both challenges and opportunities for brokerage firms. CRE principals and senior brokers understand that adapting to changing market dynamics is essential to success. And when market conditions are challenging, the most successful CRE businesses adapt and seek out additional revenue streams. Tenant representation not only generates new business but also creates unique opportunities for your brokerage and your junior brokers. Further, tenant rep can lead to a more diverse deal pipeline and why this diversity is a key to success in the competitive world of commercial real estate.

Tenant representation is a great way for junior brokers to develop their skills and knowledge. By working with senior brokers on tenant rep deals, junior brokers can learn about the different aspects of the CRE leasing process, from market research to financial analysis to negotiation all while generating additional revenue and a host of other benefits.

Benefits of serving tenants in commercial real estate.

Support Local Businesses

Tenant rep is also a great way to support local businesses. By helping businesses find the right space and negotiate the best possible lease, you can help them grow and succeed. This can lead to repeat business and referrals from satisfied clients.

Multiple Revenue Streams

Diversifying your revenue streams is a key component of sustainable success in CRE. Tenant representation introduces a new dimension to your brokerage’s income. Tenant representation can even create opportunities depending on your ability to scale and desire to grow your business. Beyond traditional sales and leasing commissions, tenant rep deals can include advisory services, project management, and even property management. By incorporating these additional revenue streams into your business or through partnerships with other businesses, your brokerage becomes more resilient and adaptable, allowing it to thrive in a challenging market.

Establish Lasting Relationships

One of the most significant advantages of tenant representation is the opportunity to build lasting client relationships. While traditional transactions may be one-off, tenant rep often involves long-term leases and ongoing advisory services. By working with a wide range of clients to find the right space and negotiate the best possible lease, you can build trust and rapport. 

This continuous engagement fosters strong bonds with clients. These relationships not only bring in repeat business but can lead to referrals and word-of-mouth recommendations, expanding your client base and revenue potential.

Create a More Diverse Deal Pipeline

Tenant rep can also help you create a more diverse deal pipeline. By working with a variety of businesses, you can reduce your reliance on any one industry or sector. This can make your brokerage more resilient to economic downturns and other market disruptions.

Diversification is crucial for mitigating risk and staying competitive. With a variety of property types, industries, and deal structures in your portfolio, you’re better equipped to weather economic fluctuations and market shifts.

Benefits of a More Diverse CRE Business

  • Risk Mitigation: A diverse deal pipeline reduces your brokerage’s reliance on a single market segment or type of property. This risk mitigation is crucial in unpredictable economic environments.
  • Market Expertise: Handling a wide range of property types allows your junior brokers to gain expertise in various sectors, enhancing their market knowledge and adaptability.
  • Competitive Edge: A diverse CRE business positions you as a well-rounded brokerage, capable of serving clients across different industries and sectors.
  • Growth Opportunities: As your reputation for diverse expertise grows, so does your potential to attract new clients and venture into emerging markets.

Tenant rep is a great way for junior brokers to develop their skills and knowledge. By working with senior brokers on tenant rep deals, junior brokers can learn about the different aspects of the CRE leasing process, from market research to financial analysis to negotiation.

In today’s challenging CRE landscape, tenant representation presents a valuable opportunity for CRE principals and senior brokers. By embracing tenant rep, you can generate new business, offer opportunities to your junior brokers, support local businesses, diversify your revenue streams, establish lasting client relationships, and ultimately create a more diverse deal pipeline.. As the industry continues to evolve, embracing tenant representation can be a game-changer for your brokerage’s success.

Success in the 2023 commercial real estate market. How to step up to today’s challenges and build a stronger business.

OfficeSpace.com + CORFAC in our latest blog

The commercial real estate market is constantly evolving, and brokers need to be prepared to adapt in order to succeed. In what remains of 2023, there are a number of challenges that brokers will continue to face, but there are also a number of opportunities to capitalize on. We were lucky to sit down with Jonathan Salk, the CEO of CORFAC International and talk all things CRE, and how CORFAC continues to help professionals build better businesses and lead commercial real estate into the future.

Anyone in commercial real estate knows that the current climate is saturated with challenges and that the past months have been a tough time to weather the storm, much less grow business. A few key challenges we see include interest rates, inventory, and technology’s influence on CRE sales.

 

Challenges Facing Brokers in the Current Climate of CRE

Rising interest rates and current the lending environment: 

The Federal Reserve is expected to continue raising interest rates in 2023, which will make it more expensive for businesses to borrow money to buy or lease commercial real estate. This could lead to a decline in demand for commercial real estate, which would make it more difficult for brokers to find buyers or tenants for their clients.

Low inventory: 

The commercial real estate market is currently experiencing low inventory, which means that there are fewer properties available for sale or lease. This makes it more difficult for brokers to find properties that meet the needs of their clients, and in some cases even lead to bidding wars and higher prices.

Need to grow business amidst challenging external conditions: 

The time is now… With challenging economic conditions expected to continue, simply sitting back and weathering the storm is not an option for CRE pros that want to succeed. No doubt, the broader challenges of 2023 are making it more difficult for brokers to grow their businesses. Brokers will need to be creative and strategic in order to find new clients and generate leads. 

Changing demographics: 

The demographics of the workforce are changing, with more people working from home and fewer people commuting to traditional office jobs. This is changing the demand for commercial real estate, and it is making it more difficult for brokers to predict where the market is going. 

Office is perhaps the most turbulent sector of CRE – Click to read: Is the foundation of the office sector crumbling? The future of the office – and what’s to come of the office space.

Competition from online platforms: 

Online platforms are making it easier for businesses to find commercial real estate without the help of a broker. This is cutting into the profits of brokers and making it more difficult for them to compete. It should be noted that many online resources ultimately end with connecting a broker at some point in the cycle but the impact and importance of online CRE tools and marketplaces cannot be ignored.

The need to invest in technology: 

commercial real estate as a whole has been relatively slow to adopt technology. Many seasoned veterans of the CRE world still do things “the old way” with great success. In some cases this results in resistance to implementing technology solutions which can be costly. The need to balance growth with profits and smooth operations must be considered as brokers and brokerages alike prepare to take their businesses into the years ahead.

 

Capitalizing on opportunity today to evolve your business for tomorrow.

Despite the challenges facing the CRE market in 2023, there are also a number of opportunities for brokers to capitalize on. By understanding these trends, challenges and opportunities that lie ahead, brokers can position themselves for success in the year ahead

Here are a few specific tips for capitalizing on opportunities in the CRE market in 2023. Getting connected with a brokerage network such as CORFAC is just the beginning.

Focus on niche markets: With the overall commercial real estate market becoming more competitive, it is important for brokers to focus on niche markets where they can develop expertise and build relationships.

Get involved in the community: Brokers who are active in their communities are more likely to be successful, as they will be better connected to potential clients and partners.

Stay up-to-date on industry trends: Brokers who stay up-to-date on the latest industry trends will be better equipped to capitalize on opportunities.

Use technology to your advantage: Technology can be a powerful tool for brokers, as it can help them to automate tasks, connect with clients, and market their services.

Be creative and strategic: In a challenging market, it is important for brokers to be creative and strategic in order to find new clients and generate leads.

 

Benefits of Brokerage Networks

In order to succeed in the changing CRE market, brokers need to be connected to a strong network of other brokers. Brokerage networks come in all shapes and sizes and can offer great resources for savvy brokers and brokerages looking to level up their business. 

According to Jonathan Salk, CEO of CORFAC International, “people join networks like CORFAC because they want to do business…But, at the end of the day, they want to see results.”. In this case, the results often come in the form of stronger relationships and more robust businesses better prepared to scale and take on new opportunities.

 

Brokerage networks provide brokers with a number of benefits, including:

  • Access to a wider pool of clients: Brokerage networks can give brokers access to a wider pool of clients, which can lead to more deals.
  • Shared resources: Brokerage networks can share resources, such as marketing materials and databases, which can save brokers time and money.
  • Support and training: Brokerage networks can provide brokers with support and training, which can help them to improve their skills and knowledge.

 

Capitalizing on Opportunities

While these are simple examples of how brokerage networks enable brokers to succeed, the real value lies in the finer details. Salk adds “it’s the sharing of best practices and honestly, we do that.”. He continues to give examples of some of the ways CORFAC strives to not only keep their members connected but push them to excel such as: one-on-one connections with top economists and member conferences. All aimed at adding value beyond just the network of professionals that make up CORFAC’s membership.

When asked if CORFAC’s focus is surrounded by the mentality of “better together” whether in the form of shared insights or connecting deals Salk added, “they know they’ve got people like them in 70 offices around the world. And they know if they refer a client to another office, anywhere in the world, that they’re going to get the same service”.  Not only do CORFAC members get access to one and other and enjoy the benefits of their network, but there is also value in the principals that have guided CORFAC’s success for over 30 years. 

“CORFAC is 34 years old this year. And it was founded by a small group at a conference years ago. And here we are 34 years later, as strong as ever, and basically operating on the same principles.” CORFAC’s CEO continues “They wanted to maintain their name and independence. They didn’t want to give that up. The most important thing [was] they wanted to be independent, but part of something bigger than they are. You can do business outside the network. We always preach CORFAC first, but if someone’s got a requirement and they’ve dealt with someone in another market that they’re just more comfortable with, they can do that. I mean, that principle has held.”. He adds “Corefac headquarters never gets a piece of the deal. That I don’t think you’ll find that anywhere else.”.

CORFAC’s global commercial real estate brokerage network is composed of collaborative, entrepreneurial firms that offer unmatched service to clients and provide in-depth local market expertise. You can learn more about CORFAC International by visiting www.CORFAC.com

The CRE market is constantly evolving, and brokers need to be prepared to adapt in order to succeed. By understanding the challenges and opportunities that lie ahead, brokers can position themselves for success in 2023 and beyond.

Is the foundation of the office sector crumbling? The future of the office – and what’s to come of the office space.

Office present and office past

The economic uncertainty of the past two years has no doubt taken its toll on commercial real estate – particularly in the office sector. With many companies adopting remote work policies, office vacancy rates have risen in many cities, and landlords have faced a difficult market. In some cases, companies have renegotiated their lease terms or decided to sublease their excess office space. This has resulted in downward pressure on rental rates and overall property valuations.

While interest rates remain on the rise and many assets across all classes are headed towards distress, some markets show signs of improvement, while others are feeling the pressure

However, it’s not all bad news for office spaces as an asset class. While some companies have adopted remote work policies, many others have remained committed to the traditional office setting. Some businesses have even increased their demand for office spaces as a way to comply with social distancing requirements and to ensure their employees have a safe and productive workspace.

While uncertainty surrounds the future of the office as a workspace, the more important question is this: what is to come of the office building? 

 

What is to come of office spaces and buildings?

While office as an asset class has certainly been in the spotlight over the last year or two, it is time to start considering the new realities faced by these assets. We’ll cover this from two perspectives: the office as a workspace, the office building as a commercial asset.

 

The office – a common workplace…but is it timeless?

Most of us have, or are currently working from an office. A staple and widely accepted workplace setting leading up to the COVID-19 pandemic. Since 2020, we’ve seen a shift to remote and hybrid work leading to a dramatic decrease in office utilization and in some cases necessity. The question remains: will this shift to remote and/or hybrid be permanent?

The shift from a largely full-time in-office setting to hybrid and remote was fueled by concerns around social distancing amid the pandemic and happened quickly. As we’ve seen, the return to the office has been much slower, and in some cases hybrid and fully remote work may continue. However, while these settings may be successful for specific roles and organizations, the office itself has been cemented as a standard workplace over time. While the transition back to a predominantly office environment may take time, it is a very likely trend that has already begun to emerge. What remains to be seen is at what capacity will office work make its comeback – will the office be the norm once again, or is hybrid here to stay?

 

The office building

Surrounded by uncertainty in demand, the next question is what’s to come for the office building itself. Offices come in many different shapes, sizes, and values, and as anyone in commercial real estate knows, they’re present in every market. Along with massive variance in value, these assets carry varying levels and types of (often complex) debt and most importantly varying capability to produce positive returns.

With cheap debt no longer on the table and high amounts of vacancy, many assets are reaching debt maturity and lacking the profits necessary to effectively refinance at current rates. So, what are the options for owners facing tough times amidst challenging market conditions?

 

Weather the storm

While difficult – one option for underperforming assets is to wait out the current market conditions and hope for a change in office sentiment and interest rates. Assets that are able to stay afloat amid vacancies and tough financing are more likely to become profitable again in the future. In some cases, owners may be able to restructure their financing. This may require demonstrating a viable plan to improve the property’s performance and may involve additional fees or covenants. Further, owners may seek to bring in new equity partners to inject additional capital into the property and pay off the existing debt. This may require negotiating with the existing lender to subordinate the debt or convert it into equity.

 

Convert?

Another possibility is adapting the office building. Converting a standard office to apartments or retail, or a mix while possible is tremendously expensive and not always a viable option – dependent on the particular building based on a myriad of factors including: location, zoning, size, layout, etc.

Using some general assumptions – the average office building in the U.S. is around 20,000 sq./ft.. And the costs to renovate an office into an apartment and/or retail can be between $100-$300 sq./ft. It could cost upwards of $6,000,000 to update the average office building before it’s ever able to generate revenue aside from traditionally leased office space. Compare this to a rough estimate of that 20,000 sq./ft. Office asset’s approximate value of $5-6 million dollars and the cost of converting is extremely steep and carries a high level of risk if the newly renovated asset cannot perform and meet its debt obligations. 

It’s important to note that while the cost of converting an office building into apartments (or other types of commercial space) can be significant, the potential returns on investment can also be substantial, particularly in high-demand urban areas where there is a shortage of affordable housing. With careful planning and execution, converting an office building into apartments can be a viable and profitable investment strategy for real estate developers and investors.

 

The future of office

Despite the widespread adoption of remote work, it’s unlikely that the traditional office space will disappear altogether. In-person collaboration and face-to-face meetings are still essential for many businesses, and there will always be a need for physical office spaces. However, the office spaces of the future may look quite different from those of the past.

Owners and investors of office assets must be prepared to adapt or weather the storm of current economic challenges. Like all markets, commercial real estate has its ups and downs. Investors who are able to hold their assets amid these tough times have the potential to see profits return in the future as the economy recovers, and as more workers return to the office. Additionally, there will be opportunity for savvy investors large and small to capitalize on distressed office assets as some will ultimately fail. 

The only certainty in the CRE markets of 2023 is that uncertainty is likely to prevail. Investors must remain vigilant and ready to entertain and embrace new ideas and the new reality of the office sector.

What’s The Most Important Service a Broker Can Provide a Tenant?

In order to better understand how closely brokers’ and tenants’ expectations aligned, we decided to ask the following question: What is the most important service a broker can provide a tenant?

Check out the responses below to see the top answers provided by both sides. You might be surprised to see the differences in the feedback we got.

What is the most important service a broker can provide a tenant?

Top broker responses:

Broker Replies.png

Breakdown:

  • Market knowledge: 21% of responses
  • Locating a space that meets their needs: 15% of responses
  • Good communication/Timeliness: 13% of responses
  • Accuracy: 12% of responses
  • Lease negotiations: 10% of responses
  • Honesty: 7% of responses
  • CRE knowledge/ advice: 6% of responses

Top tenant responses:

Tenant Replies.png

Breakdown:

  • Good communication/Timeliness: 37% of responses
  • Locating a space that meets their needs: 15% of responses
  • Helping them get a good deal: 12% of responses
  • Honesty: 8% of responses
  • Market knowledge: 6% of responses
  • Negotiation skills: 5% of responses
  • Access to hard-to-find listings: 4% of responses

What conclusions can we draw from this?

Market knowledge may not be the most important attribute for a broker from the tenant’s perspective. While this was the number one response from brokers, less than 2% of tenant responses had market knowledge listed as most important broker service.

The second most popular response from brokers was locating a space that meets the tenant’s needs.  Tenants too felt that this was important, and it was a match for second place.  There’s really no surprise here, this is a universal expectation.  

Good and timely communication from brokers is essential for tenants, making this attribute the number one ranked response from tenants with 37% of the responses. Only 13% of brokers marked this as the most important attribute, ranking it the third most popular attribute among broker responses.

Tenants want to get a good deal, and they expect their brokers to help. This answer seems like a no-brainer, so we were surprised that there was a bit of a mismatch between the two groups. For tenants, this was listed in their top three responses. For brokers, this came in as the 12th most popular response with only a small percentage falling this category. We could dive into the differences of responses between landlord representative brokers and tenant representative brokers, and hopefully we would see a difference. However, if we take this at face value, brokers who leverage this attribute could have a big opportunity to attract new clients. 

Tell us what you think! Is this feedback different from what you had expected?

How Are Tenants Searching for Office Space?

Finding your first office space can be one of the most exciting, yet nerve-wracking experiences. The team here at OfficeSpace.com has interacted with millions of tenants who have been in the same position.

This is why in an effort to shed some light on the process, we recently surveyed tenants about their search experience. Part of what we found out was what we expected, while some responses took us by surprise. Here’s a look at what tenants shared with us about their CRE search experience.

How much time did you spend researching commercial real estate leasing online prior to connecting with a broker?

Screen Shot 2017-08-23 at 2.27.52 PM.png

When asked how much time they spent researching CRE leasing online prior to connecting with a broker, almost have of our respondents (45%) selected “within days”.

How many brokers did you reach out to before selecting one to work with?

Screen Shot 2017-08-23 at 2.36.30 PM.png

Over half of our participants (54%) also revealed that they had not yet selected a broker to work with yet. Of those who did, 32% said they reached out to 2 to 5 different brokers before selecting one.

If you have not yet selected a broker, where are you now with your space search?

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For those who had not yet selected a broker, 33% had told us that they decided to look for space on their own when asked where they currently were with their space search. 11% of the 33% who decided to look on their own also reported that brokers had not responded to their initial inquiries, so there wasn’t much choice.

How many spaces did you see, or plan on seeing, during your search?

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In regards to space searches, we also asked how many spaces they’ve seen or planned on seeing during their search. More than half (54%) said between 2 to 5.

Do you have a preference for working with a tenant representative’s broker or a landlord’s representative’s broker to help you find a space?

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When asked if they had a preference to work with the landlord’s broker or a tenant representative’s broker, 37% of our respondents did not know the difference between the two.  The majority of tenants did not have a preference (44%) while 14% preferred to work specifically with a tenant representative’s broker and 6% preferred to work with the landlord’s broker.

Did you end up signing a lease with the broker you decided to work with?

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Finally, over 66% of tenants said that they did not sign a lease with the broker they initially selected to work with. When we asked for their reasons, 50% had to do with a negative experience with their broker, 26% of the tenants had a change in circumstances in their situation and 18% were still looking for the right space.

We would love to hear from tenants and brokers on our research. Does this information surprise you or is it what you would have expected?  

Rates Continue to Improve in Seattle Office Market as Economy Strengthens

The year started on a high note for the Seattle office market with stronger vacancy and rental rates, as well as positive absorption by the end of the first quarter.

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With the strong economy in Seattle, vacancy rates improved to 13.50% compared to 13.68% in Q4 and 15% in Q1 of last year. Additionally, asking rental rates continued to improve to a high this market has not seen since Q3 of 2008.

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The quarter’s year-to-date absorption ended on a positive at 84, 809 square feet. Projected new office space inventory under construction jumped up to by 1.7 million square feet with two notable projects – 400 Fairview and Troy Block in Lake Union, 1007 Stewart Office Tower in Central Business District and Hawk Tower at Stadium Place in Pioneer Square.

To purchase the full quarterly report or for further information, please contact John Heimbigner at heimb@officespace.com.

OfficeSpace.com’s Seattle Office Market Q2 Quarterly Report

OfficeSpace.com released its Seattle Office Market Q2 Quarterly Report today to a steady market and significant office expansions.

Vacancy rates have remained steady rising slightly from 14.4% in Q1 to 14.5% in Q2 while rental rates increased slightly from $25.83 to $26.38 respectively.

The biggest change in Seattle is the anticipated major office expansion from Amazon.com in the Denny Regrade neighborhood. This expansion is expected to add 3,000,000 square feet of class A office space. Additionally, Seattle mayor Mike McGinn has proposed increasing the office tower limit to 240 feet, up from the current 124 feet in South Lake Union.

To purchase this report for more information on major expansions and a breakdown of absorption rates by submarket, please contact John Heimbigner at heimb@officespace.com.