What's in this issue?
> With recovery unlikely for office leases, what's next? > Industrial leasing cools but still vibrant > Amazon announces $7B expansion in Ohio
With Recovery Unlikely for Office Leases, What's Next? There’s no going back, at least to pre-pandemic office values. Office leases are unlikely to recover their peak value between now and 2040, says a report from Capital Economics. And a recent analysis from McKinsey is similarly bleak, predicting that the transition to remote work will fuel the loss of $800 billion in office values in major global cities, including Beijing, London, New York, Paris, San Francisco and Tokyo, with demand for office space 13% lower than it was in 2019. Double-digit vacancies are on the rise, while small businesses that relied on office traffic, like restaurants, are still struggling. What can landlords and investors do? Office-to-residential conversions: With demand for housing still soaring, what about the idea of reinventing and remodeling these spaces into condos and apartments? Some projects are starting to take root in major cities, but not without the investment of public dollars and tax incentives. Not to mention, the impact would be limited in cities like San Francisco, as it would increase the housing stock by a mere 1.5%. Hybrid solutions: Taking mixed-use to the next level, another fix has offices, residences, retail and services existing side by side. The upside of this model is it handily solves the issue of how to use vast areas of windowless middle space in these office buildings because windows are a must-have feature for condo and apartment tenants.
Industrial Leasing Cools but Still Vibrant The meteoric rise in demand for industrial space is showing signs of cooling. In the second quarter of 2023, preliminary leases for industrial space fell 47% year-over-year, according to an analysis by JLL. Additionally, CBRE noted a 30% rise in subleasing between April and June, falling in line with an accelerating upward swing emerging from a dip triggered by the pandemic. These trends appear to point toward a softening in the market. Despite this, these trends don’t point to empty warehouses and manufacturing spaces anytime soon. Cooling retail demand: CBRE expects industrial subleases to continue rising, due to economic uncertainty and lower inventory stemming from an overestimation of product needs and retail closures. New leases in the queue: There are plenty of leases and projects on track for delivery by the end of the year. Overall, net absorption of industrial leasing should remain positive, holding up the industry’s 13-year positive streak. What’s next? While net absorption may cool after 2023, the availability of shorter lease terms and below-market rates should keep demand afloat.
Amazon Annouces $7B Expansion in Ohio
The online retail giant unveiled plans to build data centers in central Ohio to support the growth of Amazon Web Services. With six data centers built by 2029, the project represents the second largest private investment in the state's history. ©2023 Century 21 Real Estate LLC. All rights reserved. CENTURY 21®, the CENTURY 21 logo, and C21® are registered service marks owned by Century 21 Real Estate LLC. Century 21 Real Estate LLC fully supports the principles of the Fair Housing Act and the Equal Opportunity Act. Each office is independently owned and operated.
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