National office space market is very bad (reprint from Bloomberg)
This isn't news, more of a reiteration. This affects cities both in terms of urban, especially downtown, vibrance, but especially local government revenue streams, which tend to be dependent on commercial property taxes, especially in major cities.
There's lots of talk about office to residential conversion, but that will take a couple decades to have significant impact (Myths about converting offices into housing—and what can really revitalize downtowns, Brookings). From Bloomberg:
Not long from now, almost one-quarter of all US office space may be vacant. And if work-from-home—the key culprit—persists, commercial-property values will be further decimated by up to $250 billion, Moody’s warns. When combined with the impact of lower rents and lease turnovers, the vicious post-pandemic cycle will reduce revenue for office landlords by as much as $10 billion. That in turn could translate into a quarter-trillion dollars of “property value destruction,” Moody’s officials said. The figures illustrate the gloomy prospects faced by property owners and lenders as employers continue to jettison square footage or shift from multiyear leases to shorter-term and more flexible co-working arrangements. A full 85% of North American organizations polled by brokerage Jones Lang LaSalle have implemented hybrid work, and occupancy across offices in major US cities is stuck at about 50% of pre-pandemic levels. Wavering demand and increased borrowing costs have slammed office valuations, especially among older buildings. “The argument for maintaining or even increasing remote work practices remains compelling for many businesses,” Moody’s said. “If productivity remains stable and costs can be reduced by forgoing physical office spaces, the rationale for mandating in-office attendance diminishes.”
====
Small downtowns may have an advantage because the cities are less unbalanced ("From Owatonna to Red Wing, Minnesota's small downtowns see resurgence," Minneapolis Star Tribune, archive.ph copy). Also see "Revamping Nicollet Mall as a 24-hour district is one idea for downtown Minneapolis," MST, archive.ph link).
-- Downtown Next Report, Minneapolis Foundation
Labels: commercial real estate market, Downtowns/Central Business Districts (CBDs), public finance and spending, urban design/placemaking, urban revitalization
posted by Richard Layman @ 9:56 PM&Permanent Link
3 Comments:
Flight to quality in Pittsburgh, Detroit.
Modern offices in Pittsburgh are thriving, but older spaces in Downtown continue to languish
In the last three years, high-quality, modern office space has seen a net gain, even as the city’s vacancy rate rises
https://www.post-gazette.com/business/development/2025/07/17/pittsburgh-downtown-offices-flight-to-quality/stories/202507170096
It has been five years since companies nationwide emptied their offices during the pandemic, but some major cities are still in recovery mode — Pittsburgh included.
About 20% of offices in Downtown remain empty, according to the real estate firm Cushman and Wakefield.
But that number doesn’t tell the whole story, the city’s latest office market reports say.
Companies are still downsizing, but Pittsburgh’s modern office buildings — complete with amenities from fitness centers to food courts — are in high demand and getting leased quickly. Still, as construction costs rise, there’s not much new office space in the pipeline, reports from local real estate firms show.
Office space that can’t match that quality typically stays on the market four times longer, Cushman and Wakefield Managing Director Sam McGill said.
Pittsburgh nonprofit Riverlife has created a new multipurpose summer entertainment spot in the form of a 4,800-square-foot floating barge on the Allegheny River.
Located just off the North Shore’s Allegheny Landing, Shore Thing, which kicked off in early July, features art, performance — and food.
BG Brewing (formerly Brew Gentlemen) is at the helm of the restaurant portion of the attraction that floats between the Andy Warhol and Roberto Clemente Bridges. Riverlife says it will host free yoga and fitness activities, live music, art workshops and “moments of joy” through October.
More flight to quality, more interesting mixed use districts.
https://www.post-gazette.com/business/development/2025/08/17/strip-district-pittsburgh-housing-growth/stories/202508140095
The Strip District is preparing for another massive growth spurt
But the pandemic took a toll, halting development citywide and stalling progress in the Strip for years afterward, according to local nonprofit Strip District Neighbors.
Now, it seems the Strip has emerged on the other side, barreling toward another growth spurt. Demand for its modern office space is rising. New businesses, from national retailers to local mainstays, are filling vacancies on busy streets.
But five years out, one post-pandemic trend is helping the neighborhood rebound: the corporate world’s “flight to quality.”
As employers attempt to lure workers back to the office, they are seeking modern space with more amenities — something the Strip has in high supply. Huntington Bank, the global financial services firm Wilshire and the law firm Gordon Rees Scully Mansukhani LLP have all announced plans to move their offices to the Strip in the last two years.
Meanwhile, tech companies continue to lease space in the neighborhood. Gecko Robotics, Gather AI and other Pittsburgh-based mainstays are now based alongside legal and financial services firms.
Average rents for the Strip’s best office spaces now are among the highest in the city — and at least 15% higher than those Downtown, according to reports from Strip District Neighbors and real estate firm Cushman and Wakefield.
Hudson's Detroit hasn't yet lured new office users to the city
https://www.crainsdetroit.com/real-estate/hudsons-detroit-office-tenants
8/11/25
Of the known tenants that will occupy the majority — about 232,000 square feet or more that Crain's has accounted for so far — of the 404,000 square feet of Hudson's office space, all three were already in the city. Bedrock representatives have said recently that space is 93% leased, although publicly identified tenants only account for perhaps 59% of that. The remaining tenants are not known.
"First and foremost, I would categorize the Hudson building as a resounding success," McGrath said. "For a building to come out of the ground on spec in downtown Detroit, double the market’s rents, and be 93% pre-leased is no small feat. This is an example of flight-to-quality that will be used as a case study in university real estate courses for years to come."
Commercial real estate experts, speaking on the condition of anonymity, noted that those three companies could have chosen locations outside of Detroit but instead remained within city limits.
While filling the gaping maw that was the old J.L. Hudson’s department store site with a sleek new mixed-use development that includes a skyscraper signals progress for Detroit, the city generally still has had trouble landing major established office users that hadn’t already had regional outposts in the suburbs.
The Googles and Fifth Third Banks and Microsofts and Coyote Logistics of the world moved to Detroit buildings from elsewhere in the region, like Southfield and Ann Arbor, although a new Boston Consulting Group office did open a few years back.
But it's not just Detroit, McGrath said.
"The state has had a harder time attracting more large-scale office users in the professional services industries, such as finance, advertising, and tech, partially because these firms are still consolidating and cutting back on office footprints everywhere," McGrath said.
Post a Comment
<< Home