For the past couple of years, the glass-half-full view of the office space market revolved around one catchphrase: “flight to quality.”
Sure, the demand for dingy cubicles under fluorescent lighting was crumbling. As for the trophy buildings — the skyscrapers with great views and lush amenities — big companies still wanted to say they had a floor in the best building in town.
While those trophy buildings may have survived COVID-19, they’re now having a tough time a softening economy.
Commercial real estate people divide office buildings into three categories of descending quality: Class A, B and C. And at the tip top of Class A are the trophy buildings — beautiful lobbies, gleaming bathrooms and rooftop terraces with Wi-Fi.
“You hear things about the golf simulator getting thrown in there, so you can go and play a round of virtual golf,” said David Smith, who works for the commercial real estate firm Cushman & Wakefield.
When Big Tech was hiring like crazy in 2021, Smith said those companies wanted the amenities that would eventually lure employees back to the office.
“The tech sector in particular accounted for about a fifth of all leasing activity at that point,” he said.
But now, Big Tech and other big companies are in cost-cutting mode. Salesforce recently dumped six floors of Salesforce Tower onto the sublease market.
Nationally, occupied square footage for premier downtown offices fell by 3.8 million at the end of 2022, according to Thomas LaSalvia at Moody’s Analytics.
“This is a time of economic softening,” he said. “One slightly easy way to release some cost is to try to get rid of some of your real estate.”
LaSalvia said he doesn’t foresee a crash, but he predicts trophy building landlords will offer more concessions to tenants. Free round of virtual golf, anyone?
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