Last year brokers predicted office would be the hottest market in 2019, and some evidence indicates they may have been right. There was also talk about the ongoing impact and effects co-working and flex spaces will have on office commercial real estate more broadly.
So, what does all of this mean for the office sector through the end of the year and beyond?
Ongoing optimism and steady growth
According to Ten-X Commercial, a transaction platform powering online commercial real estate sales, the multifamily sector showed the strongest growth at the beginning of the year—not office.
However, offices had one of the highest rents per square foot compared to warehouse, flex, malls, and strip centers in Q2 in 2019. And according to Deloitte’s 2020 Outlook, those dealing in offices are optimistic about the future. Of them, 67% anticipate overall rent increases in their portfolios heading into next year.
Changes for co-working and flex spaces
Despite brokers calling out co-working spaces as a 2019 office CRE disrupter, that was not the case this year. That’s because co-working and flex spaces still only make up 5% of the office stock on the market, and that sector’s growth has slowed from last year.
We’ve also been paying close attention to major players like WeWork, which saw its valuation plummet by 70% in recent months.
But according to JLL’s office outlook – Q3 2019, there is still 7.4%+ overall growth expected for co-working and flex office spaces, and they’re projected to reach 30% of the US office market by 2030. So, while co-working may not be the game-changer this year, we are going to keep our eye on it— there’s still a chance for significant disruption in the years to come.
Along with the trends we discussed above, there are broader economic forces—like stock market volatility, job growth, and changes in unemployment—that will continue to affect the office market. And, with talks of a recession, and a commercial real estate bubble, CRE could experience some big changes in 2020 that impact more than just office CRE.
Stay up to date with our blog for more of the latest CRE developments in office and other sectors.