U.S. Office Vacancy Hits New High with Tenants in Control - May 2024 Newsletter 

This month’s newsletter includes the best articles from May 2024 including findings from Gensler's yearly workplace survey, latest on U.S. office vacancy rates, real estate to apartment conversions, commercial real estate outlooks, and skilled labor shortages.

2024 Global Workplace Survey from Gensler Research Institute

Over the last few years, the workplace has dramatically transformed and undergone many major changes. The criteria to evaluate workplace performance has also shifted, with emotional responses to space becoming a key component in evaluation. This workplace survey from Gensler focuses on this new perspective of people-centric performance and provides valuable insights on how to create an exceptional workplace environment. 

You can download the full survey results here.

Findings include:

  • The survey, which spoke with 16,040 employees across 15 countries, found that the most engaged employees typically spend less time working alone (34% of the time) compared to the least engaged employees (44% of the time). 71% of these highly-engaged employees also cited learning and professional development as being key to their job, whereas just 35% of their lesser-engaged counterparts found this to be critical to their roles.
  • Socialization plays a critical role in team success, with 81% of employees in strong teams often sitting with the people they work with, over double the amount of employees in weak teams (31%). The employees in stronger teams almost always know what their coworkers are working on (97% of the time) and employees in weaker teams are far less aware (52% of the time). 
  • Autonomy was a common recurring theme within high-performing workplaces, with 96% of employees who work in these environments saying that they have control over their work schedule and flexibility with their time throughout the day, compared to just 53% of employees in workplaces deemed as low-performing.

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Tenants retain upper hand as US office vacancy hits fresh high: CBRE by Maura Webber Sadovi (FacilitiesDive)

As office vacancies continue to grow throughout the United States, current and prospective tenants are gaining increasingly more leverage with renewing leases and signing new ones. This article explores the implications the U.S. office market is having with vacancies and how it affects facility leaders.

Highlights include:

  • In Q1 of this year, most major office markets tracked by CBRE vacated more space than was leased, bringing the U.S. office vacancy market to 19%, the highest rate it's seen in 30 years.
  • CBRE previously expected that this rate would top out at approximately 19.7% later this year, but it’s now forecasted to reach its peak next year at 19.9%. Demand for office space is anticipated to rise in mid-2025 once interest rates decrease and there is more certainty surrounding the economy.
  • Despite the historically high vacancy rates, many see opportunity within this, due to tenants becoming more likely to receive more favorable and longer deals. Longer-term leases are usually associated with better deals and concessions, and average asking rents are projected to reach new lows of $35.03 per square foot next year.

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Adaptive Reuse Surges Again With 151K Upcoming Units; Hotel Conversions Overtake Offices in 2023 by Veronica Grecu (RentCafe)

As remote work continues to rise in prominence and demand for office space falls, many cities have begun converting former commercial spaces into residential spaces. This article provides insights behind this recent trend as well as the top cities participating in this transformation. 

Highlights include: 

  • The amount of apartments created from buildings originally designed for other purposes reached 12,700 units in 2023 — an 18% jump from 2022 where 10,800 were converted.
  • Hotels are typically easier to convert due to the single-room design already in place, whereas office buildings require more intricate reconstruction. However, office buildings are expected to soon surpass hotels in the adaptive reuse market due to the decreased demand for new business leases.
  • One major project can go a long way with creating new residential spaces in a city. Peachtree Corners, a city outside of Atlanta, Georgia, created the most new apartment units from office spaces last year with 295, all of which were from a half-century old office building. Manhattan led the way with repurposed hotel rooms, creating 733 new apartments units primarily from the former New York Marriott East Side.

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2024 Commercial Real Estate Outlook by Al Brooks (JP Morgan)

The landscape of commercial real estate is changing in 2024 with notable trends influencing the market. This article discusses how commercial real estate faces uncertainty around interest rates and what this means for various industries.  

Highlights include:

  • Ongoing obstacles with office vacancies. There could be opportunities to convert office spaces into apartments as the national office vacancy reached 19.2% in 2023. This vacancy is attributed to remote and hybrid work models growing more popular since the pandemic, along with amenities becoming critical for employee well-being. As such, creating adaptable office spaces has been a common trend. 
  • Neighborhood retail has been successful and is expected to have unchanging vacancy rates, remaining strong. With retail not being limited to malls, neighborhood shopping centers have performed well in both urban and suburban areas.
  • Multifamily properties are continuing to perform well. Vacancy rates have remained the same throughout 2023 and high interest rates will also keep mortgage rates up. However, it’s important to note that there is low demand for luxury apartments. As such, these apartments have reduced rents to bring in residents. 

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National Skilled Trades Day spotlights urgent need to tackle skilled worker shortage by Joe Burns (FacilitiesDive) 

National Skills Trades Day highlights the severe worker shortage. As such, this article discusses how advanced technologies and programs to educate young individuals are being implemented.  

Highlights include:

  • Worker shortages have particularly occurred in building, construction, and infrastructure sectors due to high retirement rates from the pandemic. These industries are also aiming to lower carbon emissions in buildings but to continue smooth operations. 
  • Advanced technologies have been adopted in efforts to confront the labor shortage. These solutions include replacing outdated HVAC systems and installing solar panels to accommodate hybrid work models, leading to higher occupant satisfaction. The article discusses Nest, which has created the Skilled Trade Advisory Council to help advocate for skilled trades. 
  • Training programs are being developed to guide youth towards skilled trade careers. Nest has collaborated on a program with the MLB’s Philadelphia Phillies to educate students on stadium operations, including carpentry and maintenance. These training programs allow students to be exposed to new opportunities at a young age. 

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