ACRE / BOMA OFFICE GUIDE
Rightsizing the Workplace
Reexamining building needs as employees return to the office
By Ken Smith
While the debate rages on over what the office of the future looks like , building owners and managers are facing a more immediate question : how to retain tenants and fill space that has become available as a result of the pandemic . About 900,000 square feet of office space came on the market in the Sacramento region last year — a dramatic change from 2019 , when there was a positive absorption of 1.2 million square feet .
“ Interestingly enough , even with the uptick in vacancy , we have not seen a corresponding reduction in lease rates across the board ,” says Ron Thomas , executive managing director of Cushman & Wakefield , adding that a “ flight to quality ” is helping to keep rates up . “ When you have a softening in the marketplace — more vacancy — you typically have tenants moving from C product to B product and B product to A product .”
Getting Ahead of the Competition “ There ’ s an interesting dichotomy going on in office space right now ,” says Jon Walker , senior vice president at Kidder Mathews . “ There are those who want more and those waving a white flag .” While some companies are relinquishing space as they transition to hybrid models that have more employees working from home , others — including those adding staff
— are taking advantage of incentives and deals to upgrade . “ Everybody wants class A , so what we have right now is those who are in B space that are seeing opportunities go , ‘ OK , if Class A space is coming down in rate , I want to jump on that ,’” Walker says .
CBRE Senior Vice President Tony Whittaker says that although rents haven ’ t really dropped , concessions such as free rent , tenant improvements and moving allowances are on the rise . He says one reason rates have remained stable may be because only 100,000 square feet of speculative office space has been built in Sacramento over the past 10 years . “ During our last office ‘ correction ,’ nearly 3 million square feet of new office space had been delivered to the market ,” Whittaker says . “ That , coupled with negative absorption , caused a big dip in rents .”
Chetta Sinclair , who manages properties as senior director of asset services for Northern California at Cushman & Wakefield , says several of her clients did huge renovations on their buildings to get ahead of the competition in the changing market . Her Class A properties are renting in the $ 3-4 per square foot range , and although she has seen some reduction in rates , it has come down to how aggressive the client wants to be .
“ They want to get their buildings leased back up ,” Sinclair says . “ A lot of the tenants that were coming up on term just expired and moved out , where before the pandemic they were going to extend or even take on more space . It ’ s left some big
April 2022 | comstocksmag . com 73