Smaller buildings could be the next big idea for office developers.
“I think you’ll see development; it might be more bespoke in nature,” said Savills’ David Goldstein, in a TRD Talks
panel Monday on the future of the office market. “Occupiers will come back – in a different form, granted, maybe not as massive as they were in the prior cycle, or as dense of course. But I think you’re going to see some bold candidates emerge.”
Goldstein, a vice chairman at Savills, was joined by CBRE research director Nicole LaRusso and Newmark Knight Frank tri-state president David Falk for the panel, moderated by TRD managing web editor James Kleimann. The discussion focused on what the office market could look like in the wake of a pandemic that has seen great chunks of the office-going population working from home and many companies indicating their office needs might dramatically shrink.
Smaller buildings of up to 400,000 feet, Goldstein said, could see more interest from tenants, who may also now place more emphasis on amenities like private entrances.
LaRusso said there’s no appetite to kick off new projects at the moment, though it’s likely to return.
“I don’t know if anyone’s running to finance it right this second,” she said. She noted that office markets in China that shut down due to the coronavirus didn’t experience a dramatic drop-off in pricing, which she said is a good indicator for New York’s eventual bounceback.
As for what that return to normal will look like: Falk said new lease deals will drop off until tenants get a better understanding of their long-term space needs.
“We’re going to see a lot of short-term kick-the-can renewals just to live for another day,” he said.
Accurately pricing space and valuing office buildings will also become challenging in a post-Covid environment, the brokers acknowledged, and LaRusso said it was clear operating costs would go up as landlords take more measures to keep their buildings sanitary.
The brokers discussed their reluctant embrace of what used to be seen as unthinkable: virtual tours
“For years I think we all laughed at them,” said Falk, who said virtual tours are now helping tenants narrow down their picks to a handful of potential sites.
“There’s no substitute at the end of the day for walking the site,” Goldstein added. “But I think this technology can get you 80-plus percent of the way there.”
Write to Rich Bockmann at [email protected] or 908-415-5229