Before the pandemic shut down businesses, a robust economy had
powered a building boom, sending office towers skyward in urban areas across
the United States. The coronavirus outbreak, though, has scrambled plans and
sent jitters through the real estate industry.
اضافة اعلان
Skyscrapers scheduled to open this year will remake skylines in
cities like Milwaukee; Nashville, Tennessee; and Salt Lake City. Office vacancy
rates, following a decadelong trend, had shrunk to 9.7 percent at the end of
the third quarter of 2019, compared with 13 percent in the third quarter of
2010, according to Deloitte.
Developers were confident that the demand would remain strong.
But the pandemic darkened the picture.
“There is a pause occurring as companies more broadly consider
their real estate needs,” said Jim Berry, Deloitte’s US real estate sector
leader.
The timing is unfortunate for Mark F. Irgens, whose 25-story Building
Management Office (BMO) Tower in Milwaukee opened in mid-April at the peak of
the statewide lockdown in Wisconsin. A month later, a small fraction of typical
daytime foot traffic was passing by as most businesses adhered to the governor’s
stay-at-home directive, which expired. A restaurant that was slated for the
ground level was canceled, and three potential tenants have delayed their
plans.
Instead of showing off the building’s sparkling Italian marble
floors and panoramic vistas of Lake Michigan, Irgens is worrying about who is
going to pull out next and what type of corporate landscape he might face when
the pandemic finally ends.
But he is not putting on the brakes. The BMO had been planned
for five years, and he has leases to negotiate, investors to please, tenants to
woo and loans to pay off.
“Development projects are different than making widgets,” he
said. “You can’t stop; you can’t turn it off. You have to continue.”
Slowly, workers are filling their BMO offices. Managers constitute
about 15 percent of the building’s occupancy. Irgens thinks it will be the end
of the summer before it gets up to 50 percent. Without a coronavirus vaccine,
it may be year’s end before the building approaches a “normal” occupancy, he
said.
Other developers around the country are also dealing with the
fallout, especially for towers with Class A space, regarded as the
highest-quality real estate on the market. In most cases, new buildings are not
fully occupied, and developers were counting on a strong economy to do the work
for them. For instance, the BMO Tower was 55 percent leased before the
pandemic.
The question facing the owners of office towers is: Will anyone
still want the space when the coronavirus crisis fades?
If the economic pain drags on, there could be long-lasting
changes to the way people work and how tenants want offices to be reimagined,
said Joseph L. Pagliari Junior, clinical professor of real estate at the University
of Chicago’s Booth School of Business. Some of the changes — like more spacious
elevators — could be costly to put into place, he said.
The pandemic could be a “pivot point,” Pagliari said, and that
would be bad news for building owners. The office towers were designed to be “best
in class,” he said, but the pandemic has suddenly made their most salable
amenities — common areas, fitness centers and food courts — into potential
liabilities.
The economic crisis could also spur high interest rates on debt,
which would cause building values to fall, Pagliari said. That may happen even
if the crisis diminishes in the weeks ahead.
“The current pandemic has raised perceptions about the
likelihood and consequences of future pandemics,” Pagliari said. Developers who
can factor in such events will gain an advantage, but any skyscrapers that are
built with pandemic fears in mind are years away.
The prospect that workers may want to continue working from home
does not worry John O’Donnell, chief executive of Riverside Investment and
Development, which is developing a 55-story tower at 110 North Wacker Drive in
Chicago. The tallest building erected in the city since 1990, it is scheduled
to open in August and will be anchored by Bank of America. Other tenants include
law firms, many of which are doing business from home.
“There is a need for collaboration, team building, common
business cultures and a continuous desire to have social contact within a
business,” O’Donnell said.
The building is 80 percent leased ahead of its August opening.
One tenant signed for 40,000 square feet of office space at the height of the
lockdown, which O’Donnell took as an encouraging sign.
The building is already being adjusted to meet post-pandemic
needs, something O’Donnell said newer structures were better able to do.
Amenities are being updated to be touch-free. And owners are talking with
tenants about walk-through thermal imaging to monitor workers and visitors for
fevers.
The pandemic will result in a demand for more office space, not
less, said Paul H. Layne, chief executive of the Howard Hughes Corporations, a
national commercial real estate developer based in Houston. Developers will
move away from the industry-standard 12sq.m per person toward roomier
workplaces.
But others say it is too early to tell when demand for office
space will return. Jamil Alam, managing principal of Endeavor Real Estate
Group, said the situation would vary by city.
“There will be winners and losers,” Alam said, explaining that
he thinks denser metro areas like New York and Boston, which have been ravaged
by the coronavirus, could find their luster lost in favor of smaller markets.
There will be an appetite for urban, walkable, mixed-use office
environments, Alam said, and changes will need to be made in buildings over
time, like fewer touch points on handles and elevator buttons.
But projects that have not been started yet will be paused, said
Chris Kirk, managing principal of the Salt Lake City office of Colliers, the
commercial real estate brokerage firm.
“If you are a developer or landlord or Chief Financial Officer (CFO),
you are concerned,” he said. “Everyone is feeling the impact.”
.jpg)
.jpg)
