0422_ACRE:BOMA Digital Edition - Page 9


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