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National   /   May 3, 2021   /   By Paul Bubny

The Office Market: Connect CRE Panelists Provide View from the Trenches

With mixed messages coming from corporate tenants on their near-term and long-term plans for occupancy a year into the pandemic, it was time for a view from the trenches of office ownership, management and finance. Connect Commercial Real Estate did just that recently, bringing together four multifaceted viewpoints for a candid panel discussion via webinar.

Hosted by TCF and titled “State of the Market: The Office Market of Yesterday, Today and Tomorrow,” the hour-long webinar presented Trish Kelly, president of TCF Corporate Banking; Lee Golub, managing principal of Golub & Company; David Friedman, president and CEO, Friedman Real Estate Group; and Chris King, president and CEO, DPC Development Company. Daniel Ceniceros, founder and CEO of Connect Commercial Real Estate, moderated the discussion. Replays are available by clicking here.

The conversation ranged from rent collections in the pandemic’s early days to the kinds of concessions tenants are asking for now and their view on returning to the office. On collections, Friedman noted a steady improvement from those early weeks, when tenants balked at paying rent in the face of an uncertain future for their businesses.

“We were watching collections every single month, praying that we were at 50, 60, 70%,” Friedman recalled. “Today, we’re at 96.7% on collections and we still have tenants that haven’t been back to the office for a year.”

King’s primary markets, Denver and Phoenix, presented contrasting stories in terms of shutdowns last year. Across all three of the product types in DPC’s portfolio, though, collections have been high. More recently, the story has been less about rent payment and more about what tenants are asking for to remain in their spaces.

“New leases is where I’ve seen more concessions in both of our markets,” said King. “They know they’re going to be in business, they can look ahead in a five-year crystal ball, but they want something significant to help them right now.

In Golub’s hometown of Chicago, it has only been recently—since the rollout of COVID-19 vaccines, in fact—that “tenants are starting to think about longer-term. Tenants that put everything on hold when the outbreak happened are now back looking.”

Presenting a contrast to much of 2020, Golub said deals are happening again, and office leases are being signed for both new and renewal space. Those leases aren’t always happening on pre-COVID terms, though. King noted that one- or two-year renewals are now commonplace.

Golub said, “We’re able to hold rate, but the concessions are getting bigger. They’re probably growing by 20% or so.”

Speaking as both a lender and an office occupier, Minneapolis-based Kelly noted that although most of TCF’s workforce is based in the Midwest, “we’re in many different states and we have to honor those states’ regulations.”

As the vaccine is rolled out and stay-at-home orders are being lifted, TCF is first asking employees who wants to come back to an office environment voluntarily. “We expect 30% of our workforce to be back voluntarily within 90 days,” she said.

Regarding how TCF’s customers have been addressing that question, Kelly said, “It depends on every business and the view of the CEO or the leadership team on how they want to conduct their business going forward.”

Given all of the variables and possible combinations of in-office employees, remote work and travel or no travel within a given company’s near-term business plan, “It’s going to be a blend of so many different outcomes that I don’t think it’s fully predictable right now,” said Kelly.

All four panelists identified growth industries in terms of office-using employment, notably the tech and healthcare sectors. And one aspect related to commercial real estate generally has certainly been growing: “The amount of capital that’s out looking at both buying companies and investing in real estate and other hard assets is at its highest ever,” Kelly said.

Inside The Story
About the Author

Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism.
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