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Real Estate

U.S. Offices & The Great ‘De-Densification’

5 MIN READ July 20, 2020


In a eMeeting by the GRI Club, senior executives from the US real estate and capital markets gathered to discuss their visions of the future for offices and workspaces.

What are  tenant demand trends for workspace environments? What are the main strategies to be adopted when employees start returning to the office? How should space be viewed in the new normal? Similarly, questions were raised about potential negative pressure on rent and increases in vacancies and leverage. While downsizing might become a viable option it will also impact revenue costs, rent payments and portfolio sizes. This could potentially hinder investment returns on older stock. A solution might see portfolio readjustments towards suburban spaces to find value. 

These and several other issues were discussed 8th July with more than 60 industry leaders sharing perceptions and experiences. Check out the main points discussed below.

Office demand

Due to the current situation, most companies are questioning reopening their offices and what new spaces or models of work will look like in the post-pandemic period. Thinking about the market recovery phase and plans that allow the gradual and safe return of professionals to the offices, players in the real estate markets are asking how demand is going to shift in the short and medium term.  With the need for social distancing in mind, many businesses will need to rethink their real estate assets and workplace strategies, with de-densification playing a major role in the next few months. 

Discussing new strategies for workplaces was common for some companies, but for many others it was not. Many have already adopted fixed and flexible working positions for their day-to-day work, however, remote working and home-office policies are gaining new adherents.  The shift in working structures and office use can only be seen once employees start returning to the workspaces, where companies will measure space usage, potential flexible solutions and how to manage routines in the future.

New models of workplaces will surge, either in the short term through the resumption of normal activities, or in the medium and long term following trends that were already underway, but accelerated through the pandemic impacts. A hybrid integration component will play a major role here, with working groups that meet a few days a week in office spaces and work together on common projects, while those who can work remotely will stay at home Both groups will be looking for health and wellness related solutions.

Investment Appetite

On the investment appetite side, the group's perception was that the demand for corporate offices should remain, even with a slight decrease in the next few months. When taking a look at their balance sheets, some companies are trying to minimize cost exposure and reevaluate real estate assets and portfolios.

Looking into the future and demand changes, how quickly can ongoing developments and projects adjust? With slower investment and transactions, the current scenario has an impact on the supply side and new developments for the future. In a similar way looking at new opportunities on the development side is challenging,  especially on the  financing side for new speculative developments. While being aligned with innovative businesses and demand drivers is important, some spaces might even be adapted to the new reality or flexible work already. Nevertheless, companies will continue to value location, enterprise profile, as well as price and infrastructure of the assets. Offices are a major asset class in the real estate market and play a leading role in most investors' strategies. 

Looking at the future

Nowadays, it is hard to underwrite deals with so much uncertainty. Shifts are happening across all real estate assets, but it is hard to predict the impact on urban cores and new suburban values. Most of the companies are struggling right now and some of them are even sitting on the sidelines. For now, the perception from the group is that there are no distressed opportunities as of yet and we might not see any for the office sector. Wait and see strategies are being adopted since players are looking for better future returns, but with uncertainties around how long the pandemic might persist, it might be time to take action. 

Following below is the research done in relation to the current situation and the sentiments of the main leaders of the real estate markets about the US office sector:

Question: Considering arguments and market forces on both sides, where do you see office demand trending in the medium to long term?

Strong decrease - 0%
Decrease - 13%
Slight decrease - 50%
Maintenance - 16%
Slight increase - 16%
Increase - 6%
Strong increase - 0%
Question: Given your company’s view on the office sector, how are you planning to adjust your office investment activity?

Strong decrease - 8%
Decrease - 19%
Slight decrease - 31%
Maintenance - 15%
Slight increase - 4%
Increase - 15%
Strong increase 8%
Question: Based on the increased uncertainty surrounding short- to medium-term supply/demand imbalances and underwriting, where do you see entry cap rates for office investments trending to?


Decrease by 15-30 basis points - 10%
Decrease by 0-15 basis points - 10%
Increase by 0-15 basis points - 13%
Increase by 15-30 basis points - 37%
Increase by 30-45 basis points - 30%

*Polling questions were answered by 60 senior executives in the real estate market on 8th July 2020.

The debate was moderated by Tal Peri (Union Investment Real Estate) and was attended by Chad Phillips (Nuveen Global), Daniel Corwin (WeWork), Jeffrey Mandel (Tishman Speyer), John Grassi (Spear Street Capital), Kathleen Kusiak (Alta Properties), Kimberly Hourihan (CBRE Global Investors), Kristina Heuberger (LaSalle IM), Robert Deckey (Invesco), Wayne Berger (IWG), among others.

The GRI Club Real Estate agenda in the US

The GRI Club Real Estate US eMeetings agenda for 2020 is now available. Know what's ahead and plan your agenda.
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