The Office Real Estate Market: From COVID Disruption toUncertain Future

ABSTRACT

The Pre-COVID Decline Prior to the COVID-19 pandemic, the U.S. office real estate market had been subject to contraction for approximately a decade as businesses tried to lower overhead by implementing various "open office" concepts such as hoteling and/or hot-desking. For the tenants that are signing on now, there is evidence that they are asking for even less space-per-worker than prior to the pandemic;with the average being down to 175s.f. of office space per worker.M The nature of most commercial office leases blunted the effect of this COVID work-from-home move, at least for a little while. Certain property owners In especially desirable locations, or with certain marquee tenants who have all in-offlce operations, have been able to take this option and ride though lease renewals In the past three years without any material hit on their bottom-line. Rising Interest rates, which started the pandemic at 1.5% to 1.75% for the federal funds rate, and had dropped to 0% to .25% a few days Into the pandemic, have risen steadily In the last few months to 4.5% to 4.75% as of early February 2023.