CoreNet Global Summit 2023

Key Take-Aways for 2024: Get Back to the CRE Fundamentals:

1.       Capital

2.       Labor

3.       Office Demand (Housing is the Key to the solution)

4.       Operating Costs for CRE Assets

There is capital to invest, but OWC financing may offer best option for the next several months. The mU.S. Government will issue Seller Financing Bond Pools for Commercial real estate loans at 4% interest rate with a 70% LTV ratio.

Due to lack of capital, CRE Asset values have dropped in 2023:

·         Industrial assets @ 16% drop and will take 2 years to recover

·         MF apartment assets @ 22% drop and will take 3 years to recover

·         Retail assets @ 17% drop and will take 4 years to recover

·         Office assets @ 34% drop and will take 9 years to recover

Availability of Labor is the Question:

•   U.S. Labor pool was 67% in 2000, and will drop to 58% by 2050

• Boomers and Millenials are settling down, retiring, and are “Not” the future of work

• Gen Z and Gen Alpha are the Future of Work. They know that Tech is their world; so they want to experience life!

• Employers need to understand the 2 motivators of Gen Z and Gen Alpha:

• FOMO (fear of missing out) and YOLO (you only live once)

• Sunbelt and Mid-west U.S. states have seen the largest in-migration of the labor force; the coastal states have seen labor losses

• Companies are hiring fewer GIG workers; AI will play a factor in the workforce

• Employees are the “new Customer”

• Technology will Rule the Work World

Office demand: Average Weekly Office Optimization Rate by Size of Company/ Type of company:

·         Under 5000 Employees= 42% at 25-60% occupancy

·         Over 5000 Employees= 74% at 25-60% occupancy

·         Finance & professional services Users= 66% at 25-60% occupancy

·         Technology Users = 55% at 25-60% occupancy

·         Office attendance metrics= Tues. & Thurs. @ 61-68%| Wed. @ 81% | Mondays @ 26%

·         Occupiers most desired building amenities:

·         53% on-site food and beverage | 47% shared meeting spaces | 27% access to retail amenities

·         39% EV charging stations | 59% public transportation | 54% paid car parking

·         30% sustainable buildings | 34% Fitness facilities | 27% Bike and Scooter storage

Operating Costs for CRE Assets - Four (4) key critical needs to lower property owners’ costs from 2023:

·         Increased Property and casualty insurance (Climate change related disasters)

·         Tax breaks for inner city development or re-purposing of Class B office sites

·         Need lower property taxes

·         Need legislation to mitigate the cost of implementing sustainable buildings (esp. if the property is too old or functionally obsolescent)

 Summary:

·         Need more discussions about how property investors and occupiers can work together to facilitate return-to-office strategies and make the workplace a magnet for talent attraction and retention

·         Labor needs versus “the Management” needs will always be an issue

·         Successful office occupancy strategies for companies are about balancing employee flexibility with collaboration and professional development opportunities

·         Affordable Housing is the key to keeping workers and the surrounding neighborhood is an important amenity for office space workers. Suburban markets will continue to offer what the future office workers need and want.

The Covid-19 pandemic brought Landlords and Tenants closer together, changing the relationship from adversarial to a partnership.

Note: these comments were summarized from CBRE Spencer Levy’s presentation on The State of the CRE market in 2023