Part 1:
Baldwin, Caleb. “Did Remote Work Collapse the Southern California Commercial Office Space Market?” Sage Real Estate, 2 Sept. 2022, www.sageregroup.com/did-remote-work-collapse-the-southern-california-commercial-office-space-market/.
Baldwin acknowledges the concern with office space in Southern California and ensures its recovery at a “slow but healthy pace.” He mentions how the office space market is “thriving” due to the presence of tech companies. Baldwin also mentions an interesting fact; in 2019 4% of employed people in the United States worked remotely and in May 2020, that percentage rose to 43%, a huge increase. From this, the article displays data on the current average vacancy rates for office space which is much higher than the average, directly contradicting Baldwin’s beginning claim that the real estate market is “thriving”. However, his work is strong in the sense that it provides an organized list of reasons why he believes office is “not dead”.
“Billionaire Investor Jeff Greene: We’re in the First Inning of the Commercial Real Estate Correction.” YouTube, CNBC, 30 Aug. 2023,
This interview with Jeff Greene covers the contraction of office space in America. Greene believes the hit to office space is just the beginning of the correction. He speaks on the increase in people’s savings due to the pandemic. When their savings will start to decline, the demand for commercial space will decline as well. Greene believes that “the worst is yet to come” regarding B and C-class office buildings. He also believes that there is value in repurposing buildings. In the next 12 to 24 months there will be great opportunities to invest. Greene does a great job answering the interviewer's questions without dodging. However, he failed to mention anything regarding the immediate increase in interest rates after the pandemic. That should be a factor of consideration when encouraging people to buy commercial real estate.
“COVID Continues to Weaken Office Market.” Gale Library, 4 Nov. 2020, go-gale-com.libproxy1.usc.edu/ps/i.dop=ITBC&u=usocal_main&id=GALE%7CA643304441&v=2.1&it=r.
DellaPelle, Anthony, and Matthew J. Erickson. “The Office Real Estate Market: From COVID Disruption to Uncertain Future.” Counselors of Real Estate, 8 May 2023, cre.org/real-estate-issues/the-office-real-estate-market-from-covid-disruption-to-uncertain-future/.
The article briefs the reader on how office space had been rumored to downsize due to businesses trying to lower their overhead costs even prior to the pandemic. It explains how COVID was a catalyst for workers transitioning from in-person to hybrid or remote work. This sparked companies to eliminate some of their office space. DellaPelle presents the often overlooked idea of functional obsolescence. He emphasizes that functional obsolescence is also a major contributor to office space sale velocity being at an all-time low. The article was strong in breaking down potential threats and opportunities for office space owners and how they can better position themselves in the market. The author would have benefited from implementing analytical data to further emphasize his points.
Dolhyj, Andre. “The COVID-19 Impact on the Future of Commercial Real Estate.” Nationwide, Agency Forward, 22 June 2023, agentblog.nationwide.com/commercial-insights/general-industries/the-future-of-commercial-property-considering-the-covid-19-pandemic/.
Dolhyj begins by stating the pandemic has had significant impacts on commercial properties, prompting future change for different industries. He segments these changes based on sectors: Retail, Office, Residential, and Hospitality. The research indicates the impacts as well as the attempted methods of revitalization for each sector. The article highlights the common challenges that businesses are currently facing with vacancy and their plans for adaptation, such as repurposing. Dolhyj's segmenting of the different commercial sectors allowed the information to be easily processed and comparable. The article may have been more suitable with graphs and data points which would allow the reader to better comprehend the extent of the current market.
Ezrati, Milton. “Covid’s Long Shadow Still Spreads over Commercial Real Estate.” Forbes, Forbes Magazine, 20 Mar. 2023, www.forbes.com/sites/miltonezrati/2023/03/17/covids-long-shadow-still-spreads-over-commercial-real-estate/?sh=74f1fc3f27ae.
The article begins by acknowledging that office buildings have become a problematic area in real estate. It provides evidence like how construction costs have increased to 14% in the past year, resulting in developers holding off on their investments and projects for the time being. It highlights the increasing vacancy rates in every sector of commercial real estate. Ezrati states that around 10-20% of all office space will have to be reconstructed. The article is analytical and does a good job of providing evidence in the form of percentages and elaborating on them. Ezrati may have enhanced his work if he provided visual graphs to accompany his many data points.
Havsy, Jeffrey. “Why Office-to-Apartment Conversions Are Likely a Fringe Trend at Best.” Moody’s Analytics CRE, 8 Dec. 2022, cre.moodysanalytics.com/insights/cre-trends/office-to-apartment-conversions/.
The article begins by acknowledging the prospect of converting office space into multifamily units and the attention this idea has received post-COVID. Havsy goes into question the feasibility of such conversions. He stresses the importance of understanding that not all office space is available for conversion; it is a much smaller percentage. He goes over the vacancy and rental rates required to restructure office space; that is if the capital is readily available. He concludes that the crazed talk regarding office space conversions is much less realistic than simply tearing down the building and starting from scratch. Havsy’s research is exceptional in the fact that the points he provides are complemented with either specific data, visual graphs, or references. Havsy could have better elaborated his conclusion regarding tertiary markets.
Kidder, Brian. “Converting Vacant Office Space into Innovative Workspaces: The Future of Class B and C Properties.” Myelisting.Com, MyEListing, 9 Mar. 2023, myelisting.com/commercial-real-estate-news/1423/converting-vacant-office-space-into-innovative-workspaces-the-future-of-class-b-and-c-properties/.
Lebowitz, Shana. “Here’s a List of Major Companies Requiring Employees to Return to the Office.” Business Insider, Business Insider, 19 July 2023, www.businessinsider.com/companies-making-workers-employees-return-to-office-rto-wfh-hybrid-2023-1.
This article begins with companies calling back their employees into the office after COVID restrictions were slowing down. Business executives believe productivity and collaboration increase when employees are working in-person. Lebowitz speaks on how major companies are starting to discontinue hybrid work, even some taking attendance. She then transitions into a fairly lengthy list of major companies and their strategy for remote work. The article excelled when providing details for each company. However, Lebowitz may have improved her work by going more in-depth about the hybrid vs. in-person debate and how employees are responding.
Mischke, Jan, et al. “Empty Spaces and Hybrid Places: The Pandemic’s Lasting Impact on Real Estate.” McKinsey & Company, McKinsey & Company, 13 July 2023, www.mckinsey.com/mgi/our-research/empty-spaces-and-hybrid-places.
Mischke describes the behavior of employees throughout the pandemic. He conducted a study to predict the demand for office space in 2030; the results showed that the demand in 2030 would be lower than that of 2019. He did a good job of ensuring a backstory and integrating their research within that story, rather than simply presenting the research data on its own. His research incorporates varying graphs and describes their relevance accordingly. A notable weakness of the article regards the time period in which the data is being collected; “We performed this research during a time of exceptional macroeconomic uncertainty. Inflation and interest rates are high.” We can assume that the current market is going through an anomaly. It would be most pessimistic to assume the characteristics of our market today will be similar to that of 2030.
Morin, Jessica. “U.S. Real Estate Market Outlook 2023 - Office/Occupier.” CBRE, 2 Dec. 2022, www.cbre.com/insights/books/us-real-estate-market-outlook-2023/office-occupier
Obando, Sebastian. “5 CRE Trends Will Drive the Market in 2022.” ProQuest, 7 Jan. 2022, www.proquest.com/docview/2619615734parentSessionId=lPcy4VQVgAKuc2HiU2%2F04ye3YgfZLL9wZ7Tr%2B3pcGgI%3D&pq-origsite=primo.
Overhiser, Hannah. “What Is Going to Happen to Office Real Estate?” Prophia, 5 July 2023, www.prophia.com/blog/office-real-estate-outlook.
Overhiser humbly acknowledges the uncertainty in the market and its unpredictability for the future. She then presents that the office market is slowly starting to recover in some areas across the country. She speaks about tenants demanding shorter lease terms to cope with the uncertainty. Landlords are starting to discount tenants for subletting. She states that the market should be watched to ensure the impact on office space doesn’t affect industries outside of commercial real estate. Overhiser’s transparency in her work can be appreciated by the reader. When she describes the winners and losers in a scenario, her article would benefit if she provided potential solutions for the losers.
Poleg, Dror. “The Next Crisis Will Start with Empty Office Buildings.” The Atlantic, Atlantic Media Company, 26 June 2023, www.theatlantic.com/ideas/archive/2023/06/commercial-real-estate-crisis-empty-offices/674310/.
Ramani, Arjun. “The Donut Effect: How COVID-19 Shapes Real Estate.” Stanford Institute for Economic Policy Research (SIEPR), Jan. 2021, siepr.stanford.edu/publications/policy-brief/donut-effect-how-covid-19-shapes-real-estate.
Smith, Morgan. “90% of Companies Say They’ll Return to the Office by the End of 2024-but the 5-Day Commute Is ‘Dead,’ Experts Say.” CNBC, CNBC, 11 Sept. 2023, www.cnbc.com/2023/09/11/90percent-of-companies-say-theyll-return-to-the-office-by-the-end-of-2024.html.
The article begins with a data point that 90% of companies are planning to return to the office by the end of 2024. Almost a third of those companies are threatening to fire people if they do not abide. This is an ongoing debate whether employees should return to the office; does productivity increase in-person or at home? This question is very controversial at the moment. Some companies benefit from in-person work and others do not. Of course, tech industries are the highest for productivity at home. Companies that are more interactive and collaborative will require higher in-person attendance. Employees are petitioning for hybrid work as they believe is a better work-life balance. Smith did a great job quoting real executives on their thoughts on the issue and tying that with her points. She may have benefited from interviewing employees as well, to understand their side.
The Future of Office Buildings & Commercial Workspaces, 11 July 2023, www.jpmorgan.com/insights/real-estate/real-estate-banking/the-future-of-office-buildings-and-commercial-workspaces.
This article points out the changing landscape of office space in real estate due to abrupt market dynamics. It focuses on the different classes of office buildings and how that affects their market value. Class A buildings are top-of-the-line buildings that are modern-looking and up-to-date with current technology. Class B and C buildings are more run-down and dated with much higher vacancy rates. This is where most of the environmental issues and violations are found. Quality and sustainability are being prioritized. These buildings, however, have a chance to be modernized to meet today's standards. This is the argument office owners are having today: is it better to remodel the building or completely tear it down and build a new one? The article does a great job describing the timeline with interest rates and how that correlates with office vacancies. However, it could have benefited from having data on Class B and C properties being remodeled or torn down.
“The Future of Office Space in Commercial Real Estate.” CBIZ, Inc., Mar. 2023, www.cbiz.com/insights/articles/article-details/the-future-of-office-space-in-commercial-real-estate.
“The Office Real Estate Market Is Down, but a Revival Is Coming.” Real Estate Development Software, Northspyre, 5 Jan. 2023, www.northspyre.com/blog/the-office-real-estate-market-is-down-but-a-revival-is-coming.
The article speaks on the general impacts of the pandemic, cost cutting, laying off employees, and contraction of tech companies. There is also a push for hybrid work from Gen Z. By 2025, this generation will make up about 30% of the workforce. From this, it is assumed that companies' desire for employees to be in-person will not be prioritized. COVID created a shift in the workspace that will never be the same as it was. The article transitions into talking about the market volatility and lowered office prices and how it is a time for new developments to be made, as vacancies are also high. A strong characteristic of the source is the data points are linked to other references, where the reader can dig in more. The organization, however, could have been better; the research seems to talk about unemployment stats, hybrid work controversy, and office real estate/development: significantly different topics to properly unravel in one article.
Veiga, Alex. “Office Landlords Squeezed by Falling Occupancy Rates, Refinancing Difficulties. Here’s Why.” AP News, AP News, 25 May 2023, apnews.com/article/commercial-real-estate-refinancing-office-space-67bfc934379e04aaf21a66467d8a99b4.
Part 2:
Being a real estate major, I had a fairly good overview of the commercial real estate office situation before doing this paper. I had a real estate brokerage internship over the summer where they gave a high-level overview for each commercial sector. They made it clear to everyone that office space is the only sector new agents should stay away from. I wondered why this was the case and decided to read more about it. It made sense to me. The pandemic required everyone to work at home, leaving these office spaces vacant. Businesses have two main goals: maximizing profit and minimizing cost. Rent is the biggest cost for many businesses, so it is clear why so many of them decided to transition to remote work when employee productivity is more-or-less the same.
Before diligently researching this topic, I was under the impression that purchasing office buildings and converting them to multifamily is going to be the new trend. However, I now realize the cost associated with that transition is much greater than the potential return, especially with the increase in construction costs and interest rates. Functional obsolescence is also a fact I had previously overlooked. Some office space is built-to-suit, meaning before the construction of the building, a tenant is already secured to occupy the space. Thus, the building would be constructed in a way that would be optimal for that specific tenant. When the tenant's lease expires and the space is now vacant, it will be much more difficult to find a new tenant to move in due to the specific construction of that space.
I certainly have a better understanding of the topic than before, especially with regard to how everyone is responding. What are banks doing? What are landlords doing? What are investors doing? It was beneficial to learn the banking side of the dilemma: understanding how interest rates and foreclosures are affecting the commercial space. My previous impression of the situation was that the hit to office space is approaching an end and that recovery is impending. However, after reading different articles and listening to interviews, it seems that experts are predicting that this is just the beginning.
It raises the question as to what will be in store for companies in the near future and how they will be able to adapt. It makes me question what the market will look like when I pursue a career in real estate. Doing the research also informed me that a lot of companies are pushing back on the trend of hybrid work and forcing employees to return to the office. While simultaneously, many employees are petitioning against this decision and prefer the change. The research on employee productivity at home vs. in-person is often inconsistent. One article states that productivity is much higher at home than in-person while another article says the complete opposite. I think it depends on the industry. I believe the tech industry can better adapt to the change compared to a sales-focused industry which would require more in-person presence.
My opinion is that the demand for office space will inevitably come back within the next 5-7 years. Now the events that will occur in that time can be most unpredictable and will likely change my stance. Not nearly as significant as multifamily, but I believe there will always be a need for office space due to the great variety of industries. Obviously, this only pertains to white-collar workers, as a mechanic cannot work from home. My prediction is that the tech service industry will innovate new ways of remote work and ultimately eliminate the need for office space altogether. Industries that are more business and finance-related will benefit from in-person work. The opportunity of bumping into a senior executive and giving your elevator pitch can only be possible with in-person work.
I used to be a proponent of office-to-multifamily conversions, but now understand the complications that come with that. I am sure many developers and investors are pursuing this, or else nobody would be talking about it. There was a lot of craze when real estate gurus first started hearing about this. It seems that only recently, articles have been released covering the difficulties that are associated with the project. It will be interesting to see how this situation with office space will develop in the future. I hope it makes a comeback and returns similar to before. There are inarguably certain factors that employees can benefit from when working in the office. I think we should move forward and enhance human interaction in the world. This seems like a step back from that standpoint.