Office For Commercial Real Estate: Definitions, Examples And Opportunities
If you are looking to work with the commercial real estate industry alongside those who invest in, build, buy or rent office space, this analysis explains the basics so you can make informed decisions.
This guide addresses the following questions about the office sector
What are the types of office buildings?
What are the top office markets?
What are the different types of office facilities?
What are the trends and recent developments?
What is unique about office construction and building design?
Who are the major players?
What Defines CRE As Office Space?
Offices are located in buildings that are designated for office use. Offices that are combined with housing, shopping and industrial are considered mixed-use properties.
A company interested in office space can either pay a certain amount per month to rent space, enter into a months-long lease with a building owner or purchase its own office.
Office spaces are different from coworking spaces. While coworking spaces can be used by different companies within the same space, office spaces are typically designed for a single company’s use and can be redesigned to fit each company’s needs. Additionally, coworking spaces may offer different leasing options, from one day to a couple of months.
What Are The Types Of Office Buildings?
The office space industry consists of three classes of office buildings that are grouped by their amenity offerings, rent price, location, age and appearance.
Class-A Office Space Definition
Provides tenants with a premier office experience in a new building, often offering amenities like high-speed internet, concierge service, fitness facilities and more.
Often adjacent to public transportation as well as ample dining and entertainment options.
Class-B Office Space Definition
Typically older than a Class-A office building.
Cost-effective rent with some amenities, such as green space and convenient parking options.
Also often adjacent to public transportation as well as dining and entertainment.
Class-C Office Space Definition
Typically offered at decreased rent prices compared to Class-A and B office buildings.
Facilities tend to be older and may not be renovated.
Often located off main streets.
Urban vs. Suburban Office Space
As hybrid work becomes part of the “new normal,” many employers have been looking into getting office spaces close to where their employees live. Seeking suburban office space, however, is nothing new.
In February 2022, CommercialCafe reported that in the last two decades, 67% of offices were built in the suburbs. The study found that while cities such as New York and Los Angeles focused on bringing forth more city offices, metros in the Western U.S., such as Phoenix and Denver, built offices in their suburbs.
Here are some of the main features of urban and suburban office spaces:
Urban Office Space
Higher rental price than suburban offices.
Downtown locations are walkable to dining, shopping and entertainment.
Has access to more public transportation options.
Suburban Office Space
Comes at a lower cost for more space.
Commutable by car, with less reliance on public transportation.
Convenient parking options.
The following types of offices can be located in either urban or suburban areas:
Corporate Campus:
Consists of multiple buildings owned within the same company that are nearby or connecting.
Has a variety of parking options for the buildings.
Often created in accordance with the spaces and amenities that employers need.
High-Rise Office Buildings:
Buildings are typically made of steel, with spaces that comprise multiple floors.
Floors are typically accessed by elevators or escalators.
These structures need to have a strong foundation and be able to withstand strong winds as well as earthquakes.
Austin Is The Hottest U.S. Office Market In 2022
With its thriving tech scene and several major companies relocating their offices from the East and West coasts, Austin, Texas, is considered the hottest U.S. office market. According to Fortune, Austin has seen an increase in Generation Z workers, with hiring rising by 21% between 2020 and 2021. In addition to offering more affordable living options than New York City or the Bay Area, Austin is also known as a “business-friendly” region. Both Google and Meta have locations in Austin, Texas.
Office Markets With The Most In-Person Return
Many employers around the U.S. have been making decisions about if and when their employees should come back to the office. As of Sept. 12, Kastle found that in the 10 top markets researched, the average office occupancy was 43.4% of pre-pandemic levels, and Texas was home to the top two office markets for in-person occupancy.
Here are the offices with the most in-office occupancy and their square footage:
1. Austin – 57.2% in-office occupancy
According to the Wall Street Journal, the majority of Austin’s more than 80,000 jobs have been in tech and finance, which typically are conducive to in-person work. Major companies such as Google, Meta and Amazon have set their sights on office space in Austin’s downtown area.
Square Foot found that Austin’s office market contains over 62M SF, with over 40M SF of Class-A spaces.
2. Houston – 54.2% in-office occupancy
Hewlett-Packard and ExxonMobil are among the companies that have campuses in Houston. While some companies are drawn to Huston for its oil and gas reserves, others have been hoping to attract top talent, positioning themselves near Houston’s many colleges to help with recruitment.
Square Foot found that Houston has over 212.8M SF of office space.
3. Dallas - 50.8% in-office occupancy
Tech companies – such as AT&T, Likewize and AECOM – are located in Dallas. Companies have been drawn to Dallas due to its low cost of living, which can benefit employees, as well as its low operating expenses.
Square Foot found that Dallas’ downtown area offices comprise 40M SF.
What Is Happening In The Office Sector?
With many employees splitting their workweek between the office and home, office investors and building owners have been exploring ways to secure their best tenants. As a result, the sector has been experiencing a flight to quality — or what happens when investors offer exceptional office assets to keep tenants interested in coming back to the office.
Many of these desirable buildings are Class-A properties that provide access to public transportation as well as amenities such as parking, green space and fitness centers. Although Class-A properties come with a higher rent than Class-B and C properties, their offerings help increase the likelihood that tenants will stay in their leases longer.
Holding company IWG is the largest distributor of flexible office solutions and accommodates hybrid work models for large and small companies. On top of office spaces, features include:
Meeting, conference and event spaces.
Private workspaces.
Technology assistance from IT providers.
Virtual office with team to handle administrative tasks such as answering calls and picking up mail.
What Is Unique About Office Design And Construction?
When building out an office space, owners should work with a design firm to lay out the plan for how the office looks, have a budget in mind for the total cost of construction, and hire architects and a construction team to determine what materials and equipment are needed for the office.
Offices should be designed in a way that makes it easy for employees to work wherever they feel inspired and still have access to the equipment they need. They should also be arranged to support both collaborative and independent work and come equipped with the technology to stay connected to remote workers from anywhere.
Certain industries may have particular needs when it comes to how their offices are designed. For example, because life sciences companies have a lab component in addition to office space, they would need a flexible design so that employees can use the lab while also having access to conference rooms and meeting spaces. Additionally, workers with offices in a clinical setting may need air purifiers.
What Are The Trends In Office Construction?
The pandemic has highlighted the need for spaces that are tailored to individuals’ values and work styles. Since many employees became accustomed to the comfort and convenience of working from home, many employers had to come up with solutions to incentivize their full-time return to the office. This involved rethinking the way offices were organized and making spaces more conducive for a diverse workforce.
One trend that has been gaining popularity is the flexible workspace — workspaces that accommodate employees’ respective needs for productivity and safety, from offering adjustable desks and a variety of furniture options to reorganizing desks for social distancing or installing glass partitions between desks.
Features Of Pandemic Office Spaces
The square footage an office requires may depend on how many employees the office has. Zippia concluded that each employee typically requires 150 SF to 175 SF of office space, which has expanded to account for pandemic safety precautions. Additionally, in industries such as life sciences that anticipate future development or companies that can expect to bring in more top talent, it is best to get an office space that can expand.
Many office spaces will include the following features:
Collaborative spaces for meetings and conference areas.
Building security features, such as electronic locks, cameras and reception staff.
Network security features, such as virus protection plans and firewalls.
Technology, including high-speed internet, cloud-based apps and the Internet of Things.
Kitchen area and appliances.
Building lobby furniture.
Storage space.
Rooftops.
Fitness centers.
Who Are The Major Players?
Brookfield Properties
Brookfield Properties manages over 140M SF of office space around the world, combining office assets with retail, dining and other uses. The company has developed more than 80 sites, with over 40M SF of office space in the process of being built.
Its Space+ program offers office space design and helps customize office spaces according to tenants’ individual needs.
Quick Facts:
Has over 270 office buildings on its roster.
Over 55M SF of developments are being planned.
SL Green
SL Green is a Manhattan-based real estate income trust that handles various aspects of office management, including property management, leasing and finance. As of 2021, it was considered the largest New York City office building owner. It has rights to 34.4M SF across 64 properties. Its buildings, located around NYC, have up to 63 units. In addition to management, SL Green’s construction crew is in charge of facets of the construction process from planning to development.
Quick Facts:
Owns 26.3M SF of properties in Manhattan.
Boston Properties
Boston Properties is a REIT that is considered to be one of the largest developers and holders of Class-A office spaces in Boston, Los Angeles, New York, San Francisco, Seattle and Washington, D.C. The company focuses on creating sustainable properties, with more than 26M SF of LEED-certified buildings.
In May 2022, the company announced in a statement that it was awarded the Energy Star sustained excellence award for energy management for the second year in a row, having reached a 41% reduction in energy usage since 2008.
Quick Facts:
Has the most properties in the Boston area, with 53 assets covering 16.5M SF.
Owns 193 buildings and 53.7M SF.
Quick Facts: Office Space Reports And Statistics
JLL reported that as of Q2 2022, over 26.5M SF of office space had been completed since the start of the year, including 11.8M SF completed in Q2.
According to CommercialEdge, the amount of office units sold totaled $51.9B.
Avison Young reported that office vacancy has increased by 16%.
As of April 2022, San Francisco had 18.7M SF of vacant office space, one of the highest totals in the U.S., according to the San Francisco Chronicle.
Top Office Sector News Stories
American, Singaporean Funds Invest In $1.1B Suburban Office Portfolio
As suburban offices achieve a lower vacancy rate than ones located downtown, Workspace Property Trust and GIC Pte. Ltd. closed a $1.1B deal for a majority stake in suburban U.S. office buildings.
‘The Fog Of War Is Lifting’: More Companies Making Long-Term Decisions About Their Offices
Many office tenants are getting decisive about what to do with their office assets, which for some landlords means moving forward with leasing office space for the long term. There are also tenants who are debating whether they want employees to return to the office, and if so, in what capacity.
Office Depot’s Headquarters To Be Sold By Parent Company
The ODP Corp., owner of Office Depot and OfficeMax, has sold its 650K SF headquarters in Boca Raton, Florida. Sales decreased by 2% between Q1 2021 and Q2 2022.
Pension Funds Selling Off Office Properties To Reduce Exposure To Remote Work
Public pension funds have put 9% of $6T toward real estate, which includes office assets. However, many have been cutting down on funding for office assets due to many people choosing not to return to the office full time.
More Traffic At Dallas Office Buildings Could Be A Thread In The Silver Lining Of A Recession
When it comes to returning to work in person, markets such as DFW outperformed others. However, within DFW, smaller companies in downtown areas like Dallas saw quicker returns to the office than larger companies in smaller cities such as Plano and Frisco. Should a recession occur, some offices may try to bring people back to the office, but only time will tell.
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Office
Definitions, Examples And Opportunities