Spotlight On... the Office Market

The COVID-19 pandemic has created concerns and significant unknowns not experienced for generations. The full impact on real estate in particular will not be clear for many months, with some market segments suffering to a greater degree than others. The focus of this initial newsletter will be the office market.

Financing for commercial real estate, while not at a standstill, has taken a hiatus or a “back-seat” role as banks focus on government-backed lending programs to assist businesses crippled by the pandemic. Several notable office property transactions have been terminated due to the pandemic, including:

  • Blackstone’s $405M acquisition of the nearly 400,000 square foot Uptown Station in Oakland (difficulty in obtaining financing);
  • RFR Realty’s $400M purchase of 900 Third Avenue, New York City (along with a retail condominium located at 1600 Broadway);
  • SL Green’s $815M sale of the former New York Daily News HQ located on East 42nd Street (rescinded financing agreement); and
  • Kaiser Permanente’s construction of a new corporate HQ in Oakland (anticipated construction delays and increasing costs).

WashREIT sold a 223,000 square foot building located in Tysons, Virginia, but accepted a $6M reduction to the sale price negotiated pre-pandemic. And related to the office market, but not directly involving a real property transaction, was SoftBank’s exit from the $3B tender share repurchase of WeWork.

So, what is the present and future of office buildings? Will more businesses allow/require employees to work remotely, as suggested by a recent study by consulting firm Gartner, which indicated that 41 percent of employees expect to work remotely at least part time, up from 30 percent pre-pandemic? If so, will there be a significant loss in demand for office space? Or, conversely, will demand require larger work spaces to allow for a safer work environment, a reversal of recent trends that dictated greater densities?

As for investor and market expectations, Brian Rapela, MAI and Managing Partner of the Joseph J. Blake & Associates, Inc. Pacific Northwest office, recently participated in a webinar hosted by the Appraisal Institute. Brian’s presentation focused on some insights specifically related to the office market. A few takeaways:

  • Like other market sectors, deal velocity has slowed, and some lenders have pulled out and/or deals are paused;
  • Leases are being signed but taking longer, utilizing more resources, with increased concessions such as free rent and abatements until shelter-in-place is lifted, and a flattening of rental rates;
  • Medical office, previously viewed as recession-proof, is struggling, with rent collections down;
  • Market participants are paying particular attention to collections (higher collection losses and vacancy in the near-term);
  • Market participant interviews suggest anticipated value declines of “a few percent” up to 20 percent;
  • Insufficient data exists to conclude an increase to OARs and IRRs; and,
  • 1031-related sales should be viewed with caution.

Brian’s full presentation is available on the Joseph J. Blake & Associates, Inc. website at

For all your office and other real estate valuation needs or questions,
please contact Michael Maglocci, MAI, MRICS at (312) 372-5331 or by email at

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