‘What Do We Do Here?’: Distress Signals Are Rising In Major Office Markets
January 18, 2022 | Jon Banister | Bisnow
Many questions about the office market’s future remain unanswered as the pandemic nears the two-year mark, but one trend has become increasingly clear: Tenants are leaving older buildings in favor of newer projects.
This accelerated shift has left owners of some aging office buildings with large vacancies and insufficient cash flow to pay back their debt, putting billions of dollars of office-backed loans at risk.
The flight to higher-quality assets had already taken off before 2020, but it reached new altitudes during the pandemic as tenants pushed for better air filtration, outdoor amenities and building sustainability ratings.
Additionally, some are now able to afford the higher-end space by shrinking their leased footprint because of the remote work shift and as the owners of newer buildings offer record breaking cash and rent incentives to sweeten their offers.
Given the long-term nature of office leases, these relocations have only occurred for a fraction of tenants that had expirations during the last two years, and this trend will continue to play out for several years. Experts say this will create not a sudden wave, but a continuous trickle of office assets becoming distressed in the coming years.
