One of the business sectors impacted most profoundly by the pandemic is commercial real estate. Once work from home mandates were put in place, offices sat nearly empty and tenants began rethinking the future of how much space their companies really need. Just as the pandemic waned, and companies began calling their employees back to the office, the world was hit by one issue after another, including the war in Ukraine, record inflation that rocked the global economy, and most recently, the Israel-Gaza conflict. Will commercial real estate ever recover, and if it does, what will it look like in the future?
Robin Szabo, President of Szabo Associates, sat down with two commercial real estate experts from Lee Associates in Atlanta -- Griff Sims, Principal, and Dan Wagner, Chief Data Officer -- to get their thoughts on the state of their industry. While cities such as San Francisco are suffering through a 32% office vacancy rate, others like New York City have leveled out to 18% from the pre-pandemic norm of a 10%-13% vacancy, which they consider a "healthy" market. "The biggest disrupter…is the hybrid work environment," says Wagner, "and companies now are trying to understand what their space needs actually are." The two explain that the types of buildings that will stand the test of time are those that can attract top-tier tenants. That means landlords will need to spend significant dollars upgrading interiors, building spaces that place fewer people in more square footage, and possibly even meet LEED standards. They warn that "B-level" buildings -- those not in metropolitan areas and/or close to public transportation -- stand to be hit the hardest and may have wrecking balls in their future. But for those that meet tenants' increasingly high demands, landlords will find themselves at the advantage, rather than the other way around.
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