9th Annual Real Estate Outlook

A skyscraper boom in the roaring 1920’s heralded the rise of the modern office building, crammed with swivel chairs and desks. As corporate giants emerged and Wall Street firms flourished, office-space demand exploded in the 1970’s, fueling a wave of new tower blocks, such as the World Trade Center and the Sears Tower. Now, as hybrid and remote work reduces demand for physical workplaces, a different type of potential boom — adaptive reuse — is gathering steam.

There are two significant structural forces impacting today’s commercial real estate office market:

1. The rise of hybrid work combined with a flight to quality by companies seeking newer office buildings with high-quality amenities. As a result, older, commodity-like office buildings are becoming competitively obsolete
2. The Federal Reserve’s fight against inflation is being combatted with an interest rate regime change that is resetting office values and straining capital structures.

Accordingly, a growing number of distressed office buildings is reflecting a recognition by owners and lenders that the robust return to the office they had hoped for isn’t likely ever to materialize. The number of employees returning to the office has plateaued at around half the level it was before the pandemic, reflecting the popularity of remote and hybrid work policies.

Public and private sector investment is beginning to respond to this dramatic shift in office use. Most major urban city administrations are unveiling recommendations to facilitate the conversion of underused office space into alternative uses including housing and hospitality. Private equity firms, distressed debt investors and owner/operators are beginning to embrace this trend and seeking underutilized and/or distressed office assets for adaptive reuse.

• Understand the office market segmentation, the supply size of the trophy, class A, B and C sub-sectors and their geographic dispersion.
• Discuss the outlook for traditional office space from owners’ and lenders’ perspective given the rise in popularity of hybrid working arrangements; how do upcoming debt maturities impact decisions?
• Understand the demand drivers for the conversion of traditional office space into residential buildings and the known and unknown costs associated with conversions.
• Understand the most important investment decisions of office space conversions. What are the characteristics of a good and bad conversion opportunity?
• Hear from leaders from the public domain as we trend towards adaptive reuse.