Return-Path: Delivered-To: andrew@sterlingcal.com Received: from reseller401.webserversystems.com by reseller401.webserversystems.com with LMTP id 4OOLCjDpHmZzJQsAchKAPA (envelope-from ) for ; Tue, 16 Apr 2024 16:10:08 -0500 Return-path: Envelope-to: andrew@sterlingcal.com Delivery-date: Tue, 16 Apr 2024 16:10:08 -0500 Received: from o13.ptr1224.officeinteractive.com ([168.245.9.66]:49502) by reseller401.webserversystems.com with esmtps (TLS1.2) tls TLS_ECDHE_RSA_WITH_AES_128_GCM_SHA256 (Exim 4.96.2) (envelope-from ) id 1rwq47-0035Bc-0d for andrew@sterlingcal.com; Tue, 16 Apr 2024 16:10:08 -0500 DKIM-Signature: v=1; a=rsa-sha256; c=relaxed/relaxed; d=jefftaborgroup.com; h=content-type:from:mime-version:subject:to:cc:content-type:from: subject:to; s=s1; bh=0/zfhnpnk9QxwzRuOhcz9KNpx5onW4hB22Q8Ae5qr4c=; b=tmJSiLWWskHxLkdcQY+NSI/5LQnF8usL93hagQHBX2qYqKd5IZe4bmGp6JHER0o6vpVR RC924rUHiqoQPfHBPaKgxbo/79zELysSSucTE1Kr755B6rFDqTsuR5CGxiRKgkdssCOBY0 Xei+3s5yBOuxv+o6iJT6EUjliEPGIZUe+EOhOjnHU6UgtP0yT6NrPJARe4pF3uQ4TWFZ6n j4ltHKCeFciVE5nE5GwuMQ9lW10S0kkFALDt8Noe4MKj4w9uK+h1qC71FrpHnEABt/vq+e dIUJhYupHJEqNlKPB5m1Y2nroFmqXTqG4sX9n91imc+80jUAColqOK6UyngX+BpA== Received: by recvd-547d99795c-q24bc with SMTP id recvd-547d99795c-q24bc-1-661EE91E-8 2024-04-16 21:09:50.48269059 +0000 UTC m=+342572.115620744 Received: from MjEzMTA1MDQ (unknown) by geopod-ismtpd-6 (SG) with HTTP id IgEUmj7TRKmRXp3m4R0vlw for ; Tue, 16 Apr 2024 21:09:50.469 +0000 (UTC) Content-Type: multipart/alternative; boundary=137a9d5cd5de315b02aa37bf7093eb58ab7a20709e0fde9d6e1989d2b06a Date: Tue, 16 Apr 2024 21:09:56 +0000 (UTC) From: Jeff Tabor Mime-Version: 1.0 Subject: U.S. Office Market Gloomy Message-ID: X-SG-EID: =?us-ascii?Q?u001=2E6XgS+aMGExnB1bqZZrdrz9qzQEbZ7BEjpKh5guDijZ5HYu1dYAKq1tDEG?= =?us-ascii?Q?Tygo2l3bpRSrRRtQO=2FYwkK2RsxQ5J5BmYmiBjL4?= =?us-ascii?Q?=2FRjcrAG9YBU1hgFjQaMAq2GhcUSCltXAcJjHw34?= =?us-ascii?Q?hd7Xn+nE9Edil9FAglEIUsJg3QtUkAnoiWqAktr?= =?us-ascii?Q?yy=2FV7CviQz1MFNlreuX37ePF8FDFYDwQXTJYkN8?= =?us-ascii?Q?JwuN8xgDNhKqnpNHx7nOix0PygGxOVVdq3sxOZ3?= =?us-ascii?Q?H80p?= X-SG-ID: =?us-ascii?Q?u001=2ESdBcvi+Evd=2FbQef8eZF3Bh9j3NnBJscFucVpeFCJe6zimcvlNYPkpIJSC?= =?us-ascii?Q?W7bAZsugEnWBU+IWcwogXiOo79Vorl3GHphgtec?= =?us-ascii?Q?TNSU2BDowwk0cbQrCHtlQ2K1EEtbSI5Iy6xgb9v?= =?us-ascii?Q?eS0IGhxwzrOE9DQ=3D=3D?= To: Andrew Sterling X-Entity-ID: u001.hZHiB6kKM9UW5e2fAO4iNQ== X-Spam-Status: No, score=-0.7 X-Spam-Score: -6 X-Spam-Bar: / X-Spam-Flag: NO --137a9d5cd5de315b02aa37bf7093eb58ab7a20709e0fde9d6e1989d2b06a Content-Transfer-Encoding: quoted-printable Content-Type: text/plain; charset=iso-8859-1 Mime-Version: 1.0
=20

Good afternoon, Andrew.

The below article was just out this past Sunday…and I coul= d not agree more as to its sentiments and prognostications.

Interest rates are likely to only go up, along with = inflation…and back to office has pretty much leveled out…and = rarely enforced anyway. This will push current office landlords to continue= (as I stated last week) to try to both “pretend and extend” on= their current loans, to some who will look to sell and to others who will = simply hand the keys back to the creditors and walk away from their buildin= gs.

It is, Andrew, truly a trifecta o= f bad news for office landlords.

 Please reach= out should you have any questions as to what I believe your landlord will = do here and what their course of action, I believe, they will take over the= next twenty-four months.

Sincerely,<= /span>

<= td style=3D"width: 32.3523%;">
Jeffrey A. Tab= or – Founder/CEO
Jeff@JeffTaborGroup.com
JeffTaborGroup.com
(800) 507-6673
RE License # 010152= 87

Connect with me on LinkedIn: Jeffrey A. Tabor






U.S. Office M= arket Outlook Gloomy As Availability Hits New High

The U.S. office market turned in a dismal first quarter to = start a year that many in commercial real estate see as one meant for tread= ing water and waiting for calmer seas. Available space is at record levels,= overall demand is tepid and formerly vigorous space takers, such as tech, = are paring back their usage.

The outl= ook, especially following last week’s higher inflation numbers and th= e subsequent doubts that an interest rate cut is in the near future, is als= o bleak. Familiar beacons of hope, like return-to-office and conversion pot= ential, are waning as debt bears down on landlords.

 “There’s just no tenants right now. You have an issue wi= th a lower group of tenants. Let’s take a service provider. So a law = firm, for example, or an accounting firm. The accounting firm just needs le= ss space. That doesn’t mean that they don’t need an office, the= y do. But they don’t need as much office space as they once needed,&r= dquo; Locke Lord partner Mark Silverman said.


More than one-fifth of the country’s office space is ava= ilable for either direct lease or sublease, with 1.2B SF up for grabs. It&r= squo;s a figure that has crept up since the pandemic set in more than four = years ago, and it is not likely to reverse course anytime soon, despite eff= orts by landlords and employers alike.

The r= eturn-to-office effort has bolstered the hopes of many in the office world,= with major companies in important sectors like finance and tech announcing= mandates that would require workers to come to the office for a given numb= er of days per week. But despite a few bright spots in the trajectory of th= e movement, return-to-office is lacking a major component that could make i= t a game-changer for office usage.

&l= dquo;The element of return-to-office policy that has been missing is enforc= ement,” Avison Young U.S. President Harry Klaff said. “That wou= ld suggest that there's concern that enforcing policies could cause som= e type of flight risk among employees.”

Take Goldman Sachs, for instance. The finance giant’s requir= ement that all employees work from the office five days per week was announ= ced in May 2022, eliciting cheers from the CRE industry. Six months later, = just 65% of the firm’s employees were abiding by the rule, causing Go= ldman to “remind” employees of the requirement.

Competitor Bank of America issued a requirement in O= ctober 2022 that employees be in the office at least three days per week, b= ut the Financial Times reported in January that the company was sending out= “letters of education” to noncomplying employees, threatening = disciplinary action.

<= span style=3D"font-family: Times New Roman, Times, serif;">Return-to-office= isn’t necessarily a dead letter, Klaff said, but it might take more = years to happen at a scale that makes a difference to leasing and won't= make an immediate impact on office markets.

Tech companies, another of the country’s biggest office leasi= ng drivers in the pre-pandemic years, have challenges of their own. RTO man= dates in tech have met with mixed success, and some tech companies are usin= g any resistance as a means to make determinations about layoffs, a scourge= in the industry in the last two years.

Most of the tech sector is in turmoil, culling employees brought onboard= during the hiring surge in 2021 while reckoning with changes coming from w= ithin the industry in the form of artificial intelligence. Helping with lay= off decisions, though, doesn’t boost office usage.

<= p>“In my career, tech has always led to recovery of= the real estate market,” Klaff said. “I don't know if it&#= 39;s going to happen that way this time.”

Whether in-office or not, office-using companies are poised to h= ire fewer people, a reflection of an uncertain economy and a bad sign for o= ffice occupancy.

Office job postings,= considered a leading indicator of employment growth, were down 26.8% in th= e first quarter from the same period in 2022, AY reported, with tech postin= gs dropping 60% and finance down 48%.

All of this availability, of course, means less income for landlords as de= bt loads encroach. Nearly $150B of office-backed mortgages are expected to = mature this year, with more than $300B coming due by the end of 2026.

At the end of 2023, office owners and comm= ercial real estate at large had high hopes for interest rate cuts that woul= d offer much-needed relief, but four months later, those hopes have grown d= immer with each inflation report and Federal Open Market Committee meeting.=

The so-called wall of maturities is = likely to spur some office sales activity this year and next, HKS Real Esta= te Advisors partner Michael Lee said.

“People have been sitting on their hands for the last 24 months, bas= ically saying unless I have to do something, I'm not going to do anythi= ng,” Lee said. “Now some of those maturities are actually start= ing to come due. So the world has to turn at some level, right? Transaction= s have to flow to some degree.”

The deals that are completed probably won’t spur the office conversi= on spree that many have touted as a potential partial solution to office&rs= quo;s challenges, Lee said.

“The likelihood o= f hitting on those deals is still a bit off,” Lee said. “Pricin= g expectations are still misaligned, and they're challenging deals in g= eneral. A lot less conversions are going to happen than people may think.&r= dquo;

One bright spot for the office market did c= ontinue to shine in the first quarter. The highest-quality properties, incl= uding newer Class-A and trophy assets, are attracting those companies that = have been executing lease deals.

Direct avai= lability for trophy properties stood at 17.7% nationwide in Q1 compared wit= h total direct office availability of 20%, according to AY data. But, highe= r-quality properties have been the most in-demand for years now, causing th= eir supply in many major metro areas to dwindle, impacting leasing.<= /span>

“We've seen a slight decrease in t= rophy leasing across the U.S. in terms of the share of total leasing,&rdquo= ; Avison Young Regional Manager for Market Intelligence Danny Mangru. &ldqu= o;It's not really because occupiers aren't looking at the high end = of the market anymore. The supply is diminishing.”

<= p>In Q1, leasing in trophy office buildings represented 2= 0.4% of the total, while Class-A space was 38.8% of the total, according to= AY data. During all of 2023, trophy leasing represented 22% of the total a= nd Class-A nearly half, at 48.9% of the total.

Tenants who are still in the market for trophy space in gateway m= arkets, however, are willing to sign longer leases for such space than in m= ore average product, AY reports. Companies are willing to sign for an avera= ge of 110 months, compared to 91 months for Class-A and less for B and C. T= hat trend will likely continue in the coming quarters.

= Office investment remains stuck in neutral and financing = prospects are limited, AY also reports. At $1.3B of investment sales volume= for office buildings during Q1, the market is on track to have the lowest = total sales volume since 2009, when sales totaled less than $10B. In peak y= ears like 2015, the total was more than $70B.

Returns for the U.S. office sector will remain anemic in the comin= g years, according to the Urban Land Institute's most recent survey of = economists, which forecasts an average annual return of less than 1.9% unti= l 2026 for the sector. As hybrid work schedules persist, rents in the offic= e sector are projected to contract by an average of 1.1% annually.

“Investors are unsure of where values a= re. Unsure if they are increasing, decreasing or flat,” Lee said.

That uncertainty is even impacting those= investors interested in distressed debt as a way to acquire assets at a st= eep discount. “There's definitely interest in distressed office d= ebt,” Lee said. “There's going to be more of it available. = The problem we're seeing is the disconnect between buyers and sellers. = There's a disconnect between lenders and buyers.

Good afternoon, Andrew.

The below article was just out this past Sunday…and I coul= d not agree more as to its sentiments and prognostications.

Interest rates are likely to only go up, along with = inflation…and back to office has pretty much leveled out…and = rarely enforced anyway. This will push current office landlords to continue= (as I stated last week) to try to both “pretend and extend” on= their current loans, to some who will look to sell and to others who will = simply hand the keys back to the creditors and walk away from their buildin= gs.

It is, Andrew, truly a trifecta o= f bad news for office landlords.

 Please reach= out should you have any questions as to what I believe your landlord will = do here and what their course of action, I believe, they will take over the= next twenty-four months.

Sincerely,<= /span>

<= td style=3D"width: 32.3523%;">
Jeffrey A. Tabor – Fo= under/CEO
Jeff@JeffTaborGroup.com
JeffTabor= Group.com
(800) 507-6673
RE License # 01015287

Con= nect with me on LinkedIn: Jeffrey A. = Tabor





U.S. Office Market Outlook Gloomy As Availability Hits= New High

The U.S. office market tu= rned in a dismal first quarter to start a year that many in commercial real= estate see as one meant for treading water and waiting for calmer seas. Av= ailable space is at record levels, overall demand is tepid and formerly vig= orous space takers, such as tech, are paring back their usage.

The outlook, especially following last week&rsquo= ;s higher inflation numbers and the subsequent doubts that an interest rate= cut is in the near future, is also bleak. Familiar beacons of hope, like r= eturn-to-office and conversion potential, are waning as debt bears down on = landlords.

 “There’s just no tenan= ts right now. You have an issue with a lower group of tenants. Let’s = take a service provider. So a law firm, for example, or an accounting firm.= The accounting firm just needs less space. That doesn’t mean that th= ey don’t need an office, they do. But they don’t need as much o= ffice space as they once needed,” Locke Lord partner Mark Silverman s= aid.


More than one-fifth of the country’s office space is= available for either direct lease or sublease, with 1.2B SF up for grabs. = It’s a figure that has crept up since the pandemic set in more than f= our years ago, and it is not likely to reverse course anytime soon, despite= efforts by landlords and employers alike.

T= he return-to-office effort has bolstered the hopes of many in the office wo= rld, with major companies in important sectors like finance and tech announ= cing mandates that would require workers to come to the office for a given = number of days per week. But despite a few bright spots in the trajectory o= f the movement, return-to-office is lacking a major component that could ma= ke it a game-changer for office usage.

Take Goldman Sachs, for instance. The finance giant’s re= quirement that all employees work from the office five days per week was an= nounced in May 2022, eliciting cheers from the CRE industry. Six months lat= er, just 65% of the firm’s employees were abiding by the rule, causin= g Goldman to “remind” employees of the requirement.

Competitor Bank of America issued a requirement = in October 2022 that employees be in the office at least three days per wee= k, but the Financial Times reported in January that the company was sending= out “letters of education” to noncomplying employees, threaten= ing disciplinary action.

Return-to-of= fice isn’t necessarily a dead letter, Klaff said, but it might take m= ore years to happen at a scale that makes a difference to leasing and won&#= 39;t make an immediate impact on office markets.

Tech companies, another of the country’s biggest office l= easing drivers in the pre-pandemic years, have challenges of their own. RTO= mandates in tech have met with mixed success, and some tech companies are = using any resistance as a means to make determinations about layoffs, a sco= urge in the industry in the last two years.

Most of the tech sector is in turmoil, culling employees brought onb= oard during the hiring surge in 2021 while reckoning with changes coming fr= om within the industry in the form of artificial intelligence. Helping with= layoff decisions, though, doesn’t boost office usage.<= /p>

“In my career, tech has always led to recover= y of the real estate market,” Klaff said. “I don't know if = it's going to happen that way this time.”

Whether in-office or not, office-using companies are poised = to hire fewer people, a reflection of an uncertain economy and a bad sign f= or office occupancy.

<= span style=3D"font-family: Times New Roman, Times, serif;">Office job posti= ngs, considered a leading indicator of employment growth, were down 26.8% i= n the first quarter from the same period in 2022, AY reported, with tech po= stings dropping 60% and finance down 48%.

All of this availability, of course, means less income for landlords= as debt loads encroach. Nearly $150B of office-backed mortgages are expect= ed to mature this year, with more than $300B coming due by the end of 2026.=

At the end of 2023, office owners an= d commercial real estate at large had high hopes for interest rate cuts tha= t would offer much-needed relief, but four months later, those hopes have g= rown dimmer with each inflation report and Federal Open Market Committee me= eting.

The so-called wall of maturiti= es is likely to spur some office sales activity this year and next, HKS Rea= l Estate Advisors partner Michael Lee said.

“People have been sitting on their hands for the last 24 month= s, basically saying unless I have to do something, I'm not going to do = anything,” Lee said. “Now some of those maturities are actually= starting to come due. So the world has to turn at some level, right? Trans= actions have to flow to some degree.”

The deals that are completed probably won’t spur the office co= nversion spree that many have touted as a potential partial solution to off= ice’s challenges, Lee said.

“The likeli= hood of hitting on those deals is still a bit off,” Lee said. “= Pricing expectations are still misaligned, and they're challenging deal= s in general. A lot less conversions are going to happen than people may th= ink.”

One bright spot for the office market did continue to shine= in the first quarter. The highest-quality properties, including newer Clas= s-A and trophy assets, are attracting those companies that have been execut= ing lease deals.

Direct availability for tr= ophy properties stood at 17.7% nationwide in Q1 compared with total direct = office availability of 20%, according to AY data. But, higher-quality prope= rties have been the most in-demand for years now, causing their supply in m= any major metro areas to dwindle, impacting leasing.

“We've seen a slight decrease in trophy leasing a= cross the U.S. in terms of the share of total leasing,” Avison Young = Regional Manager for Market Intelligence Danny Mangru. “It's not = really because occupiers aren't looking at the high end of the market a= nymore. The supply is diminishing.”

In Q1, leasing in trophy office buildings represented 20.4% of the t= otal, while Class-A space was 38.8% of the total, according to AY data. Dur= ing all of 2023, trophy leasing represented 22% of the total and Class-A ne= arly half, at 48.9% of the total.

Ten= ants who are still in the market for trophy space in gateway markets, howev= er, are willing to sign longer leases for such space than in more average p= roduct, AY reports. Companies are willing to sign for an average of 110 mon= ths, compared to 91 months for Class-A and less for B and C. That trend wil= l likely continue in the coming quarters.

Office investment remains stuck in neutral and financing prospects a= re limited, AY also reports. At $1.3B of investment sales volume for office= buildings during Q1, the market is on track to have the lowest total sales= volume since 2009, when sales totaled less than $10B. In peak years like 2= 015, the total was more than $70B.

Re= turns for the U.S. office sector will remain anemic in the coming years, ac= cording to the Urban Land Institute's most recent survey of economists,= which forecasts an average annual return of less than 1.9% until 2026 for = the sector. As hybrid work schedules persist, rents in the office sector ar= e projected to contract by an average of 1.1% annually.

“Investors are unsure of where values are. Unsure = if they are increasing, decreasing or flat,” Lee said.<= /p>

That uncertainty is even impacting those investors = interested in distressed debt as a way to acquire assets at a steep discoun= t. “There's definitely interest in distressed office debt,”= Lee said. “There's going to be more of it available. The problem= we're seeing is the disconnect between buyers and sellers. There's= a disconnect between lenders and buyers.

 &= ldquo;Lenders are saying we're not willing to take a loss on it,”= Lee said. “Buyers are saying they need a discount to make this work.= Otherwise, why put themselves in that kind of position?”

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= Jeff Tabor Group=A0| 501 W. Broadway, Suite 800=A0| San Diego=A0| CA | 9210= 1
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