A short-term interest rate cut may be on the horizon—but that doesn’t mean we are returning to yesterday’s persistent low rates and high valuations. The year ahead will require new thinking and reformulating the math as we structure financing for the next wave of commercial real estate investment. What CRE needs now is a significant recalibration—a Great Reset.

The first step: shifting how we think about interest rates. Sitting around and waiting for long-term interest rates to return to near-zero is overly optimistic. Even if the Federal Reserve achieves its inflation target of 2%, the federal funds rate will settle in at around 2% and a normal, upwardly sloping yield curve will result in a 5-year Treasury rate of approximately 3% and a 10-year Treasury rate around 4%.

With long-term Treasury rates at those levels, financing for stabilized properties will be in the 5% to 7% range—a far cry from the 3% to 4.5% range we saw just a few years ago. Unless real estate investors can withstand negative leverage for a short time because of increasing net operating income (NOI), most investors can expect to price prime properties using capitalization rates in the 6% to 7% range or higher. Moving from a 4% cap rate to a 6% cap rate is a 33% decline in a property’s value, assuming NOI is stable.

That brings us to step two of the Great Reset: changes to NOI. While there has been significant rental rate growth—especially for apartments in certain markets and industrial properties nationwide—in many instances, expenses have increased as fast or faster than rental rates. Major operating expenses like real estate taxes, insurance rates, personnel costs and repair and maintenance costs have all had significant increases. The increase in expenses outpacing the increase in rents also creates a decrease in value to all property types.

Additionally, there is the coming wave of loan maturities to consider. Twenty percent of the $4.7 trillion in outstanding commercial mortgages will mature in 2024, according to the Mortgage Bankers Association, with nearly $2 trillion coming due by the end of 2026. About one-third of the debt coming due in 2024 is a result of loan extensions from 2023 by borrowers and lenders that were hoping for rates to come down in 2024. Assuming lenders do not extend the loans into the future, this wave of maturities will bring many properties to market at prices lower than the owners paid for them in the past.

Lenders whose underwriting factored in favorable debt service coverage ratios and traditional debt yield tests will likely weather the interest-rate storm without major losses in the CRE sector due to the low leverage that underwriting based on debt yield required. Those disciplined lenders will be able to remain active in the market and stand to gain considerably as the Great Reset occurs. The moment is especially ripe for those ready to lend in sectors like industrial and multifamily real estate, where borrowers who secured financing during the low-interest-rate window between 2017 and 2020 now face the need to restructure their debt.

How can investors and lenders alike stay ahead of the curve? Here’s a look at the year ahead.

Where we are—and where we are headed

Many “pretend and extend” lenders have long been awaiting a drop in interest rates that will likely not happen. The aftermath of the global financial crisis of 2008 created a misplaced sense of permanence around the low rates that followed. Many developers, investors and debt providers misinterpreted a temporary phase (albeit a temporary phase that lasted a decade) as the new normal. The reality is that interest rates in the 6% to 7% range, or far higher, were the norm in previous decades. To expect extremely low rates indefinitely was simply unrealistic.

Sellers have also been slow to adjust. Now, the disconnect between seller expectations and buyer willingness has propelled billions into funds aimed at acquiring distressed debt or assets. The pressing question remains: What will cause the bid-ask spread to narrow enough for transactions to take place? Borrowers that have locked in low, fixed-rate financing have no reason to sell into this environment. However, as loans mature and a wave of maturities occurs over the next year or so_, these borrowers will be faced with the decision to refinance at much higher rates—assuming NOI growth has kept up enough to overcome the increase in interest rates—or they will be forced to sell or infuse significant equity into projects to replace the existing debt with lower leverage.

Different product types and geographies deliver different opportunities

Despite current challenges, the Great Reset will offer opportunities to both investors with dry powder and lenders with the capacity and willingness to lend into the CRE market. Some sectors, like new industrial and multifamily development, have cooled in recent months as the wave of new supply has overwhelmed the positive demographics of many multifamily markets (such as in the Sun Belt), and the satiation of industrial demand in the aftermath of pandemic-era supply chain disruptions.

Long term, both trends will enable unique opportunities for strategic investments amid market excess and the rise of office adaptive reuse. When an apartment community is not performing to pro forma, for example, a buyer can potentially acquire the property with less leverage and more equity, then refinance when lower rates come along.

The next phase of the Great Reset

Advancing the market requires a shift in collective thinking. After all, one investor’s bad news may be another investor’s golden opportunity. A well-performing building, such as a multifamily property within an in-fill market with high barriers to entry might simply have the wrong debt structure for the times. With a forced sale due to a maturing, low-rate loan, a new ownership group can invest at a reset basis. This creates opportunities for lenders and enables projects to be revived with a reinvented capital stack. Fresh capital and a willingness to invest and lend will be critical in successfully navigating the Great Reset.

Cushman & Wakefield announced the commercial real estate services firm has arranged the disposition of the Plano Industrial Portfolio, which includes eight buildings totaling 846,261 square feet, to DRA Advisors.

Cushman & Wakefield’s Jim Carpenter, Jud Clements, Robby Rieke, Madeleine Supplee and Trevor Berry represented the seller.

The portfolio is located immediately northeast of the U.S. Highway 75/President George Bush Turnpike interchange in Plano, Texas, and is 100% leased to 15 tenants whose average tenure is 10 years, highlighting the key location and functionality of the buildings.

Buildings in the Plano Industrial Portfolio include:

• 2700 Summit Avenue, a 120,276 square foot property
• 2701East Plano Parkway, a 53,833 square foot property
• 2801 East Plano Parkway, a 65,135 square foot property
• 3101 Summit Avenue, a 140,593 square foot property
• 3301 East Plano Parkway, a 70,880 square foot property
• 3501 East Plano Parkway, an 82,880 square foot property
• 1100 Klein Road, a 104,104 square foot property
• 3601 East Plano Parkway, a 210,560 square foot property

From Houston’s diverse economy to Dallas’s thriving selectivity, Austin’s tight market dynamics, and the Rio Grande Valley’s cross-border prowess, each region of Texas offers a tapestry of opportunities for investors, developers and retailers alike. By embracing innovation, sustainability and community-centric approaches, stakeholders can navigate the complexities of the retail landscape, seize emerging opportunities and chart a course towards long-term prosperity in the vibrant markets of Texas. ‘Be agile, innovate’ to succeed in Houston’s retail sector Houston’s retail landscape remains resilient in the face of change, characterized by a low vacancy rate of 5.2% and stable rents. This strength is attributed to a myriad of factors, according to industry experts. “Houston’s population has been steadily growing, fueled by a combination of job opportunities, affordable housing and a diverse economy. Key sectors such as energy, healthcare, manufacturing and technology are driving this growth,” said Nathaliah Naipaul, CEO and partner at XAG Group. “As the population expands, the demand for retail goods and services also rises, which in turn strengthens the retail market.” Infrastructure enhancements, including improved transportation networks, further bolster the sector by improving accessibility to retail centers, Naipaul added, noting that XAG Group exemplifies this adaptability by prioritizing sustainability and curating unique shopping experiences.
“I believe vacancy remains low because there is a lack of new quality space being constructed,” said Jonathan Hicks, principal at Edge Realty Partners. “The reason there is a lack of new construction is due to high costs of construction and high interest rates; it is very hard to build anything right now with affordable rental rates.” Hicks argued that this, along with rising labor and inventory expenses for existing tenants, has contributed to stable rents as landlords navigate this challenging terrain. Despite a recent uptick, the vacancy rate remains healthy. Hicks viewed this as a temporary phenomenon, a result of squeezed margins for retailers. Conversely, Naipaul interpreted it as a sign of a balanced market.
“This stability is reassuring for retailers, landlords and investors, as it reduces the risk of significant fluctuations in rental rates or property values,” she said. “Landlords and property owners may have more negotiating power when leasing out retail space. Like us at XAG Group, we see many maintaining diverse tenant mixes, investing in property maintenance and improvements and staying informed about local economic and market trends.” Looking ahead, retail development continues with 3.2 million square feet underway. While some projects may encounter delays at the permitting stage, Naipaul suggested that developers perceive opportunities driven by robust employment rates and consumer confidence. Hicks believed much of this construction is user-driven, with developers exercising caution due to affordability concerns. “Developers are telling me it is almost impossible to build space that is sustainably affordable to tenants,” he said. “I heard recently that a developer was just happy to have a tenant move into their project and build out the space – their risk of failure was much higher than normal, but the landlord would at least have a built out space in their retail center that may be more attractive to the next tenant.”

The rise of e-commerce necessitates adaptation for traditional retailers. Hicks observed stores evolving into fulfillment centers and enhancing
customer experiences through interactive displays and vendor-led classes. Naipaul highlighted XAG Group’s strategy of extending the shopping experience outdoors with seating, gardens and event spaces, fostering a more inviting and community-oriented atmosphere. “Multi-functional outdoor spaces accommodate various activities like markets and fitness
classes, with amenities such as Wi-Fi and charging stations,” Naipaul said. “By integrating outdoor areas, retailers differentiate themselves, appeal to a broader demographic, and enhance the overall retail experience, emphasizing sustainability and eco-friendliness.”
For long-term success, stakeholders must adapt to evolving consumer preferences, embrace technology and prioritize sustainability, Naipaul suggested. This entails integrating mobile payments and augmented reality, along with strategic location selection and tenant mixes that cater to food, beverage and entertainment desires.
“Retailers should be agile, innovate in response to consumer trends and invest in sustainability practices to attract eco-conscious shoppers,” Nailapul said. “By focusing on these strategies, businesses can navigate the evolving market and position themselves for long-term success in Houston’s retail sector.”
Hicks anticipated further retail closures due to rising interest rates on business loans. He saw opportunity in repurposing existing buildings and acquiring failed businesses’ space at a discount. A key takeaway for investors, according to Hicks, is the current disconnect between owners and tenants. “I have tenants who are prepared to expand, but the majority require purchasing rather than leasing,” he said. “In most cases, the purchase prices are at or above market, but so many owners continue to wait for a lease. Many owners are also waiting to see what happens with interest rates, but I’m being told by many sources that rates are not expected to change much, if at all, before the end of this year.”

‘Momentum’ describes retail sector success in Dallas

Dallas distinguishes itself with a thriving retail market, defying challenges encountered by other sectors. Robert Franks, managing director at JLL Dallas, attributes this resilience to a burgeoning population and the proliferation of grocery stores, particularly with the entrance of H-E-B. Sun Belt markets like Dallas benefit from high population growth and historically low vacancy rates. “The fundamental principles of supply and demand are at play here,’ Franks said. “With vacancy rates at an all-time low, costs have increased, leading to record-high rental rates. We anticipate this trend to persist as the baseline market has been fundamentally shifted. Landlords now have the luxury of being selective with tenants, as quality vacancies attract numerous options.”
While advantageous in the short term for landlords, Franks noted that excessively high rents could strain tenants in the long run. Investment opportunities abound across various retail property types in Dallas. While larger assets are scarce, single-tenant buildings and smaller strip centers offer promising entry points. “Now is a great time to look at well-placed assets with lower rents that can be repositioned long-term,” Franks said. The rise of e-commerce has catalyzed the transformation of older malls. Malls with prime locations undergo redevelopment into mixed-use hubs, integrating multi-family housing and entertainment options. Notable examples include Collin Creek Mall, Willow Bend and Valley View Mall. “Landlords are fighting to keep up with changing customer behavior,” Franks said. “In Dallas, Class A malls continue to experience high demand, while Class B and C malls struggle to compete. These older, outdated assets are now ripe for redevelopment into mixed-use, multi-family, or entertainment centers.” Savvy investors and developers leverage data analytics to assess location suitability and shopper demographics. This data, encompassing demographics, competitor performance, and even cell phone usage, is indispensable for making informed long-term real estate decisions. “The growth trajectory of the Dallas retail sector remains strong, fueled by the region’s status as one of the fastest-growing metroplexes in the U.S.,” Franks said. “Momentum is expected to continue, with asset performance and value creation opportunities here being as strong as ever.”

‘Varied opportunities’ available for retailers, developers in Austin

At the end of 2023, Austin’s retail sector boasted an impressive 96.8 percent occupancy rate, a testament to its resilience. “The city’s zoning and planning regulations have historically limited the availability of new development spaces, creating a supply scenario that is markedly lower than demand,” said DeLea Becker, owner, founder and broker at Beck-Reit Commercial Real Estate and Beck-Reit Asset Management. “This regulatory environment, coupled with Austin’s rapid population increase and its status as a technological and cultural magnet, has sustained low vacancy rates and high demand for retail space.”

“Despite being underbuilt, Austin boasts a dense and expanding population,” echoed JD Torian, director at Cushman & Wakefield. “The purchasing power of young professionals plays a significant role in sustaining a resilient retail market. Additionally, tourism contributes to the market’s strength. Austin remains affordable for buyers, making it an attractive destination for both residents and visitors alike.” Becker described a landscape where landlords hold sway, with high demand leading to competitive leasing dynamics and rising rental rates. “This means navigating a landscape where they might have to absorb a larger portion of the build-out costs themselves, which could affect their budgeting and design choices,” Becker said. “Tenants must be financially prepared to invest more upfront in their leased spaces, which underscores the necessity for thorough financial planning and possibly seeking out alternative funding sources for their fit-outs.”
For investors, Torian emphasized the importance of considering longterm tenant mix and prioritizing sales performance over aggressive rent increases.
“Attempting to raise rental rates without robust sales could jeopardize businesses,” he said. “To achieve success, investors must comprehend and prioritize the tenant mix within the local retail market. Striving for a 10 percent rental factor may not align with tenants’ needs and could ultimately backfire for landlords, who risk inflating costs solely for the
sake of higher rents.”
The recent elimination of parking minimums by the Austin City Council marks a significant change, according to Becker, who saw it as ushering in a new era of denser, more efficient development. “This shift also revitalizes older buildings and smaller empty lots previously hindered by stringent parking requirements, allowing them to be repurposed into previously disallowed retail, offices, restaurants, event spaces, etc.,” Becker said. “By reducing the need for extensive parking, these properties can now contribute more actively to the urban tapestry, promoting a diverse and innovative use of space, increasing value and demand for landlords’ buildings and opening up new opportunities for architects and developers.”
Looking at specific property types, Becker highlighted the unique opportunities each presents. Freestanding buildings offer high visibility and attract stable tenants. Neighborhood centers benefit from foot traffic and are less susceptible to economic downturns. Power centers expand with pad sites for additional tenants. Malls transition into mixed-use spaces with entertainment and leisure options. Outparcels and pad sites are developed to optimize space for quick-service businesses. “For investors, understanding these distinctions and trends is key to capitalizing on the varied opportunities within Austin’s retail landscape, from stable neighborhood centers to innovative uses of traditional mall spaces,” Becker said. “An investor’s short-term and long-term goals tend to guide which retail asset type they favor when making investments and planning developments.”
Austin’s retail sector presents a high-stakes, high-reward environment, she added. While Becker acknowledged potential short-term market fluctuations, she emphasized the city’s long-term potential, driven by a resilient consumer base. Investors and developers are advised to adopt a long-term perspective, brace for short-term headwinds and seize the opportunities within this dynamic market. ‘Vibrant retail environment’ draws shoppers to McAllen The Rio Grande Valley has emerged as a major international trade hub, attracting a diverse range of retailers and investors. “The opportunity is in the growth of quality jobs, education, healthcare and lifestyle of which McAllen is leading the way on all counts,” said Mike Blum, partner at NIA Rio Grande Valley. “McAllen, Texas, stands out as a powerhouse city and the epicenter of the Rio Grande Valley, boasting impressive retail sales for 2023.”
The gross sales tax for the McAllen MSA was upwards of $10.6 billion, Blum shared. “By capitalizing on the region’s diverse shopping venues, increased foot traffic, cultural exchange and logistical advantages, retailers can position themselves for success in this dynamic and rapidly evolving market,” said Rebecca Olaguibel, Director of Retail and Business Development for the City of McAllen. “With the rise in international trade, there has been a corresponding increase in foot traffic from both local residents and international shoppers. This creates a vibrant retail environment and provides retailers with a larger customer base to target.” McAllen’s reputation as a premier shopping destination is attributed to several factors, according to Roger Stolley, associate at NIA Rio Grande Valley. Easy access from Mexico, a modern airport with convenient connections and a renowned shopping mall (La Plaza Mall) position McAllen as a shopping paradise. The city also boasts a vibrant entertainment scene, with a convention center, performing arts spaces and a symphony orchestra. While historically reliant on Mexican shoppers, McAllen’s retail sector has diversified, although Mexican visitors remain a significant customer base, Blum shared.
“Many of the travelers from Mexico have been banking in McAllen for generations,” he said. “They come to visit their money.” When they choose to spend it, shoppers in McAllen can choose from everything from high-end luxury brands or budget-friendly deals. “McAllen actively promotes itself as a shopping destination through various marketing initiatives and promotional campaigns,” Olaguibel said. “These efforts help raise awareness of the city’s retail offerings and attract shoppers from neighboring regions.” Looking ahead, the expansion of international bridges, growth in warehousing and manufacturing and the addition of the UT Health Cancer Treatment Center solidify the Rio Grande Valley’s position as a dynamic trade and commerce destination. This unique blend of factors creates an attractive environment for retailers and investors seeking to capitalize on the region’s potential.

The Finial Group closed a new lease agreement with the Omar Welfare Association at 3030 S Gessner Road, Suite 120, in Houston, Texas.

Christian Villarreal and William Alcorn represented the landlord in this noteworthy agreement, which will provide the non-profit organization with a strategic base to expand its vital community services.

The newly leased space in Houston’s dynamic district is ideally configured to support the Omar Welfare Association’s expanding outreach and service programs. This partnership not only aligns with the landlord’s strategic property goals but also enhances the local community by supporting a non-profit committed to impactful work.

Stream Realty Partners announced the completion of The QUAD, a mixed-use development in Uptown Dallas.

Located at 2699 Howell St., The QUAD encompasses a 12-story, 345,425-square-foot office tower complemented by five standalone retail buildings. Its prime location in the Uptown submarket, a sought-after area experiencing rapid growth and limited supply, positions The QUAD as a premier destination for companies seeking best-in-class workspace and amenities.

The QUAD features more than one acre of activated open space, including an urban lawn, and The QUAD Club—a penthouse amenity center boasting a full-service bar, lounge, conference center, and rooftop terrace with stunning views of the Dallas skyline. Additionally, The QUAD will be the smartest building in Dallas, becoming the first to achieve both WiredScore and SmartScore Platinum ratings, and will showcase the largest indoor high-resolution digital art installation in Texas.

The property will also boast seven on-site dining options, including Two Hands, an all-day café; LDU, an Australian coffee bar; Written By The Seasons, a Dallas-based farm-to-table restaurant; DOMODOMO, a chef-driven dock-to-table concept; Mamani, a modern European fine-dining restaurant; Crushcraft, Thai street food concept; and Bread Club, an upscale bakery.  

The project’s development team includes Stream Senior Director Brad Dornak, Senior Director of Design and Construction Jerry Mays, Director of Design and Construction Blake Bell, and March. Stream Senior Vice President Ryan Evanich and Vice President Marissa Parkin handle leasing for the property.

Prior to delivery, Stream signed four tenants totaling 115,000 square feet, including Revantage, Chicago Title, M Financial, and Berkshire Residential.

Other key partners in the project include architectural firm Omniplan and contractor Austin Commercial.

While many highly qualified analysts have well-documented the transformation of the office sector, the question on many investors’ lips is: “Who are office tenants today, how can I reach them, and how can I benefit from taking advantage of current office market opportunities?”

Whether you’re a current owner uncertain about what to do with your office property, someone looking to buy at a discount, or a broker looking to advise your client with the best knowledge, this article un-fogs the murkiness of the sector. Here, we peer back into the history of the office sector to better inform today’s understanding of what tenants prioritize most in their office needs and the best strategies to meet that demand.

Painting the Scene: Offices from 2000-2020

The evolution of the office sector over the past few decades reveals significant shifts in design, tenant demographics, and market dynamics, driven by changing cultural norms and economic demands.

The 1980s era of the “Yuppie” office worker saw executives with offices as a status symbol emblematic of one’s power in an organization. From the mid-2000s until the pandemic, egalitarian practices started to become more popular, contributing to higher-density, open floor plans with five to six people per 1,000 square feet instead of the four per of previous years.

By the late 2010s, the office sector was experiencing a boom, with robust construction and heavy investment, particularly in major cities like NYC and San Francisco, who had 20 million square feet each in development by the end of the decade, and emerging markets like Miami and Austin. National office vacancies hit record lows at the end of 2019, as a diverse array of tenants – including legal services, banking groups, and tech companies – demanded spaces that could support their growth, resulting in many securing long-term leases of an average of five years with little negotiating power over the high rents.

However, these bustling office environments led to increased needs for amenities and infrastructure, such as enhanced parking facilities in cities with limited public transportation options like Nashville and Miami. Office buildings capitalized on this by integrating charges for parking spaces into their revenue streams. Amenities, too, became more desirable (though less of a necessity than they are today), such as proximity to food, shopping, and commuting centers, as well as fun perks like well-stocked kitchens and cold brew on tap.

The Pandemic Seismic Shift (or Hiccup)

And then came Covid. Different states and cities eased isolation restrictions at various points during the pandemic, but the brief isolation forever changed the country’s idea of the office.

The pandemic also accelerated trends budding before 2020, such as decentralization and harnessing technology to simplify and distribute workplace operations. Instead of opting for a single 40k square foot headquarters in one city, companies of different shapes and sizes saw the opportunities in talent acquisition and cost savings by, for example, dotting four smaller offices of 10k square foot, spread across the country. However, add in kitchens, copy rooms, and other common areas and these organizations ended up with a hypothetical 12k square feet per space: more than what they had utilized in their previous single headquarters.

Tools like Zoom and Slack made asynchronous work easy, and the pandemic only further popularized the “hub and spoke” model, especially as more workers fled larger cities for lower cost of living markets, accessible home prices, and larger living spaces – especially because their homes now served double-duty as their offices.

However, over the years of lockdown, many companies saw how remote work impacted spontaneous collaboration, networking opportunities, mentorship, and even worker mental health.

As such, many companies adapted their leasing needs to a key concept: flexibility.

So… Now What Are Tenants Doing?

Many small businesses are still working from home, but large companies started calling employees back to the office in 2022 and 2023, and many have implemented, at the very least, a hybrid model, if not a total return to the office. Nearly 80% of US workers are fully working in person, with the remaining amount either hybrid or fully remote. Regarding new leasing activity, however, some emerging trends have shifted post-COVID that will likely never revert to the mean.

As mentioned above, many corporate tenants are embracing smaller spaces with open floor plans in diverse markets for a spread-out footprint. This enables them to attract high-quality talent and not spend as much on rent in the highest markets, though optimizing the desirability of such spaces has become essential.

Amenities like restaurant proximity, high-end security systems, fast internet speeds, open courtyards, high-quality HVAC systems, natural greenery and lighting, and so on became part of the package to attract talent to a company, positioning Class A offices as the newly crowned king (and, indeed, the buoy overall) of the office sector. Commuting time also continues to be a high priority for office users, with the ideal distance of 20 minutes from the office playing a role in tenants’ decisions about where to set up shop.

While the demand for office space is, as ever, market-specific, it also depends on the tenant. Corporate tenants are coming back strong, able to mostly afford the high rent of these desirable, newer office developments. Conversely, many entrepreneurs, solo practitioners, or SMBs, who otherwise would have leased a smaller Class B or C space, are deciding they don’t need office space. It’s easier and more accepted than ever to start and run a small business from home and only rent a space when they reach that growth point.

Navigating the Negotiation Table

In a post-pandemic world, tenants have different things to consider when they come to the leasing table.

With fewer spaces leased in a building, higher common area maintenance (CAM) costs are worth considering. Many landlords have a standard pro rata agreement for tenants to cover CAM costs, but tenants want to avoid being responsible for picking up the slack if a building has empty space. Instead, tenants are having conversations about cap provisions to protect themselves from otherwise being liable for more than their fair share.

Tenants also have significant leverage in conversations with landlords and lease negotiations. TI allowances have become a valuable leverage point, where landlords can offer to reimburse costs or otherwise cover tenants to customize office suites to their needs. This is especially true in Class A buildings, especially those still finalizing development where upgrades can be incorporated into pre-leased corporate spaces. And in Class B buildings, the ability to beautify one’s space (not on one’s dollar) may make less-lovely buildings more viable for tenants seeking lower rents.

As such, office owners of desirable Class A buildings are able to demand higher rents, with corporate tenants ready to compete for such attractive spaces. Indeed, Class A asking prices and going rents have driven what small growth we’ve seen in the sector while Class B and C buildings continue to experience shrinking occupancy, and may even face demolition to make way for updated use.

The Bottom Line: What’s Next for the Office Sector?

So, one may ask what does an improving economy mean for the office sector? And given the thousands of layoffs (in part offset by strong hiring in some sectors) this year so far, particularly in the tech sector, how does this bode for office leasing?

Fortunately, from a supply/demand perspective, developers built little office space in the last five years. The market had a decent supply left from 2019 in specific markets, but because office construction was held in check, we expect an uptick in demand to occur gradually.

Class C offices are slowly being removed from the bucket altogether, with owners either selling for conversion projects or tearing down to make room for new assets – usually some kind of multifamily building (though this depends on zoning, market, floorplates, and feasibility). But overall, businesses are bouncing back, especially those proven through the pandemic, and growing – which means more jobs.

If you’re a current owner, I recommend a highly hands-on leasing approach with your tenants. Users have more leverage for now, and offices are not the passive source of income that NNN lease retail buildings are: owners should be aggressive and actively form relationships with their tenants, working closely with their broker to lock in long-standing lease agreements and consistent ROI.

As the evolving landscape of office space continues its pursuit of cyclical equilibrium, those who can best leverage data and optimize investment and leasing strategies will be best positioned for success. For those looking for even more insight into current markets, asset performance, and other data, Crexi Intelligence is your all-in-one tool for comprehensive commercial real estate insights.

Eli Randel is chief operating officer of CREXi, an online real estate research company.