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May 19, 2020 | 4:53 pm

#168

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Quote:

Originally Posted by HDQDD

Commercial real estate has completely crashed. But I'm not sure we've seen the bottom. Lots of companies are learning that they simply don't need the office space, and I think that hit to CRE will come later (i.e. when leases aren't renewed). It's one thing when tech companies start working from home, but now you have financial institutions publicly saying they'll be allowing that as well. Call centers are another thing I expect to see moved into people's houses. The tech exists to do that anywhere nowadays (ala B6)

Agree with you... I oversee about 15 commercial leases for my company (arguably can be considered a financial institution), and we are nowhere near the bottom of the pricing cycle IMO. The two landlords I am working with right now on soon expiring leases have been excessively overconfident in negotiations up until the last 3 weeks, assuming that asking rates from the beginning of the year are still achievable. I have intentionally slowed played the two in progress deals, to allow the landlords to start losing confidence in their position. On the smaller space near PHL this foot dragging has proved effective, and on the other (which is 4,000 square feet in a the MIA adjacent Class "A" building) there has been no rent price movement but I did obtain a 40% jump in tenant improvement dollars versus what they offered 45 days ago. This Miami landlord though is one of the twenty largest insurance companies in the country and have a very healthy balance sheet.

The largest space my company occupies (NW Atlanta area), comes up early next summer and is 30,000 square feet in a Class "A" building. A year ago the 170,000 square foot building was 85% occupied, but my guess is now down to 50%. Working with our CEO and CFO, we are comfortable leasing no more than 15,000 square feet in the future. We previously used about 11,000 of the 30,000 square feet for a something similar to a BPO call center, but we’ve found that our current technology allows the call center space number to probably go down to 4,000 square feet. The work from home environment we mandated back on March 3 has had subjective benefits, staff morale being one. On a more objective basis customer service and client audits have reflected errors and caller complaints have not increased, plus nobody calls in sick. We expect to see further improvements in efficiency from our clerical work from home staff, once children go back to school.

Desktop hardware technology improvements, robust collaboration software, better staff training, high unemployment rates, and bandwidth improvements, make commercial office space a tenuous bet over the next few years. I feel for friends in the office space industry, but I am being paid to keeps costs down for my employer. If beating up landlords helps my (division of a Fortune 500) company meet financial goals, I’m all in.

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