Per Bisnow’s The Future Of Office Leasing Looks More Like Multifamily, some commercial real estate industry speculators think that between increased competition from office space alternatives and increased tenant demand for shorter leases changing office buildings’ cash flow and valuation — resulting in less time to amortize an investment and shrinking TI allowances — office valuation is starting to look more like hospitality or multifamily.
“Companies are increasingly reluctant to plan for longer than three years, so now you’ve got this industry that has subsisted and valued assets on long-term leases finding it much harder to get those,” Adaptive Office principal Jeffrey Langdon said.
Not everyone is buying it, however.
“The investment community will need to get comfortable with this new way of thinking first,” Parkway Managing Director Mike Fransen said. “I tend to think it will be a bit of a hybrid.”
To help stave off a future of office valuations resembling multifamily, Fransen says landlords have to own the fact that nothing will ever totally replace office space and that there is no substitute for getting a team together in the same place, face-to-face, with undistracted interaction.