- New commercial properties will require enhanced amenities. Developers are prioritizing new features that promote health and safety, tenant flexibility and ease of access in response to COVID-related concerns.
- Opportunities are broad and well dispersed. Nearly all markets reviewed in this report are characterized by favorable construction costs and supply levels.
- Conditions will remain choppy in the short term. Developers are focused on site acquisition across property types.
- Higher construction costs are not impeding new development. Average construction costs have more than doubled over the past 20 years, but high-cost markets with plentiful talent like San Francisco, New York and Boston top the charts in terms of new supply growth and absorption.
- Demand for tenant fit-outs remains muted. Office tenants generally are renewing their leases rather than signing new ones in the current environment, resulting in much less demand for tenant fit-outs.
- Occupier strategies are changing, but some priorities remain the same. Nearly 80% of respondents to CBRE’s 2020 Global Occupier Sentiment Survey said the importance of the physical office will remain the same or decrease slightly.
- Sun Belt markets continue to thrive. Eight of the top 10 development opportunity markets are in the South and Southwest, due to favorable demand drivers like quality of life, in-migration and job growth.
- Flexible office options will be a significant part of occupiers’ long-term strategies. CBRE’s Global Occupier Sentiment Survey found that 86% of respondents say they will employ flexible office space strategies in the future.
- Preleasing of speculative office development is outpacing the levels achieved during and immediately after the Great Recession. Overall speculative office development is currently 50% preleased nationally.
The Weekly Take
We Built This City: The Construction Outlook Amid COVID
2020 was a complex year for construction. Some markets paused activity for long periods, while the cranes barely rested in places where construction was deemed essential. Meanwhile, tenant improvement work and corporate projects slowed sharply amid COVID lockdowns. Trammell Crow Company’s Ann Sperling as well as CBRE’s James Millon and Jim Dobleske join Spencer Levy to offer insight on the outlook for construction as the calendar turns to 2021.