Optimism or Opportunity

Everyone is talking about it. The impacts of COVID-19 on our economy have been far reaching. Some industries continue to struggle while others are bouncing back, and a few have benefitted. Residential real estate, for example, has experienced a boom with interest rates at all-time lows and people wanting to be more comfortable at home. Industrial real estate has seen unprecedented leasing as retailers look to take advantage of the demand for online shopping. The office market has, understandably, gone the other way, as companies reconsider the size of their office footprint due to the surge in remote work.

This article will look at the Philadelphia Suburban Office market and examine the impact of the pandemic on this segment of real estate. This market, while not capturing headlines, has quietly and quickly transformed into more of a tenant’s market. 2018 and 2019 were heady times for owners of office space. Rents moved to an all-time high, activity was brisk, and tenants were expanding. 2019 saw a record high of 5.2M SF of space leased over 916 transactions. Similarly, 2020 began on a promising note, looking even better than 2019 and then Covid hit. In the year since that date in Mid-March when all non-essential businesses were ordered to work from home the market recorded 539 transactions, a drop of 41%. Is this a blip or a long-term trend?

The headlines say we are recovering and many on the ownership side believe widespread vaccinations will help fuel a quick rebound, but even the most optimistic projections suggest this may not happen. Is it fair to say that with only 12.3M SF of direct vacancy in a market of 107M SF - things could be worse? Maybe so. 11.5% percent of direct vacancy would be manageable if nothing else changed. One thing is certain, there will be change. There is no shortage of theories as to where we are headed, and these are often colored by where you sit in the real estate ecosystem. This article provides a look into key metrics for the market, some context for what they mean as well as what we are hearing and seeing from all sides.

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