Developers Delaying Office Renovations Amid Low Demand
New York, NY, November 8, 2022-"U.S. real-estate developers are delaying major office projects already under way or in the planning stages, discouraged by high vacancy rates and the reduction in workspace demand resulting from remote work,” reports the Wall Street Journal.
“Some property developers view periods of economic uncertainty and weak office demand as good times to launch new projects. Because large-scale developments tend to take three to five years or longer, developers bet that tenants looking to trade up in office quality will be drawn to modern offices with lots of amenities, just as the economy is gaining steam.
“But soaring interest rates and the slow pace at which workers are returning to offices have even some risk-taking developers wary about the future. With office use only about half of what it was before the pandemic, some of the most active developers are postponing major projects and are losing their appetite for new developments.
“That list includes real estate heavyweights Vornado Realty Trust, Houston-based Hines, Kilroy Realty Corp. and Toronto-based Brookfield Asset Management Inc., according to the companies or people familiar with the matter.
“‘Caution is the word of the day,’ Vornado’s president and chief financial officer, Michael Franco, said on Vornado’s earnings call last week. “There’s increasing uncertainty in the world, and tenants are acting accordingly.’
“About 156 million square feet of office space construction currently is under way in the largest 54 U.S. markets, down from 186 million in the first quarter of 2020 before the pandemic hit, according to data firm CoStar Group Inc. That figure is expected to decline further as developers confront rising vacancies and falling rents in most markets.”