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60% Of Office Vacancies Are in 10% Of Buildings

The office market is showing signs of resilience despite previous downturns.

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Good morning. A recent analysis by JLL paints a telling picture of the office vacancy landscape. Meanwhile, some commercial real estate brokerages see the market bottoming out and anticipate recovery.

Today’s issue is brought to you by Matheson Capital.

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JLL: 60% Of Office Vacancies in 10% Of Buildings

office buildings that are empty

A recent study by JLL uncovers a surprising pattern: a significant chunk of office space vacancies is concentrated within a mere 10% of buildings.

The data: The study points out an intriguing phenomenon: over 60% of all office vacancies are concentrated in just 10% of buildings, showcasing a significant imbalance in how vacancies are distributed across properties. Conversely, nearly 40% of buildings report being fully occupied, highlighting a polarized market.

Zoom in: This trend highlights the uneven distribution of occupancy challenges within the office sector. Additionally, the share of buildings with negative absorption has fallen to 12.7%, the lowest proportion since 3Q17, and below the 20-year average of 14.4%. This indicates a more buoyant office market than the numbers might suggest at first glance.

Occupancy trends: The distribution of occupancy has seen its ups and downs, with a peak in the latter half of 2020, where 17.3% of office buildings noted occupancy declines. The shift towards newer, amenity-rich offices by early-stage companies has left older buildings grappling with adaptability issues.

Top-shelf demand: Office leasing activity showed a promising increase in Q4, with a 14% quarter-over-quarter rise to 57.1MSF. Active tenant requirements have also been on the rise, indicating growing demand in the office market.


Why it matters: The office sector is gradually regaining its footing, with attendance climbing to 51.8% by late February. Properties that meet the evolving demands for advanced amenities and lifestyle features are in a better position, though they represent a small slice of the market. JLL's latest findings, including a boost in leasing activity and tenant interest, suggest a shift towards a more selective demand in Class A office spaces.

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✍️ Editor’s Picks

  • Higher horizons: The American Southwest is seeing a shift towards vertical living, with new developments replacing traditional single-family homes.

  • Real estate roundup: Real U.S. GDP grew by 3.2% in 4Q23, lower than the initial estimate of 3.3%, with consumer spending revised up to 3%.

  • Free fall: NYCB's stock plunged over 20% Thursday following the disclosure of the internal controls issue and the CEO transition.

  • Betting on banking [struggles]: CEO Waxman of Sixth Street Partners is poised to invest in distressed real estate, noting potential bank vulnerabilities due to high rates.

  • Navigating multifamily debt: Alex Samoylovich's firm faces challenges with $116M floating-rate debt on two Chicago apartment complexes, impacting profits and occupancy.

  • Spotting green shoots: CRE markets may be finally nearing the bottom with improving sentiment, as seniors housing cap rates rose to 7%.


  • Beyond TradFi: Many investors are struggling to secure traditional bank financing due to higher rates, stricter terms, and maturing loans.

  • BTR outlook: Don Walker of John Burns Research and Consulting highlights the potential in rental housing, especially build-to-rent communities. (sponsored)

  • Overcast forecast: NAHB predicts a 20% drop in multifamily starts in 2024, down to 379K units from 472K units in 2023.

  • Reno resurgence: Tower 16 Capital Partners acquired a 209-unit Reno multifamily property for $43M, below replacement cost, marking its return to the state.

  • Sun Belt success: Howard Hughes Holdings (HHH) reported a 4% increase in net operating income to $244M, driven by a 16% spike in multifamily NOI.

  • Legislating living: Florida lawmakers passed amendments to the Live Local Act, allowing greater development for affordable housing projects with tax breaks.

🏭 Industrial

  • Industrial evolution: The high-flying industrial sector is now balancing the delayed impact of slowing starts and 1.1BSF of new space that hit the market in 2022.

  • Revamping San Diego: BKM Capital Partners acquires San Diego's Canyon Industrial Center for $70.2M, 198.73KSF that’s 99% occupied, with a major repositioning planned.


  • Retailer reshuffle: Macy's (M) plans to close stores nationwide, including over a dozen in Dallas-Fort Worth, impacting local malls and 2,350 employees.

  • Club culture: Michael Klein, president of Urban Strategies, opted for a private club membership at Core Club, offering seamless logistics and client-ready resources.

  • Fragrance blooms: Olfactory NYC, a fragrance brand, secures a 600SF lease in Georgetown, D.C., opening in April.


  • Towering troubles: A $500M loan for Bloomberg Tower comes due in June, with Fitch lowering its outlook to “negative” over loan extension concerns.

  • Changing stripes: A recent Goldman Sachs (GS) report reveals office-to-residential conversion challenges, with only a 0.7% expected increase in conversions by 2027.


Brokerages Show Signs of Recovery Amid CRE Struggles

Brokerage Firms Issue Notes Of Optimism After Year-End Improvements

A CBRE for-lease sign outside an office building in Markham, Ontario (Wikimedia Commons/Raysonho).

Towards the end of 2023, while some CRE brokerages faced challenges, others welcomed the new year with positive results

What happened: Despite the challenges posed by the pandemic's work-from-home shift and rising interest rates, many CRE brokerages reported notable improvements in the final quarter of 2023. CBRE exceeded analysts' expectations, Newmark showcased a significant leap in net income, and Cushman & Wakefield recorded a modest uptick in leasing activities.

Between the lines: These developments suggest a potential upswing in CRE markets, as observed by Piper Sandler's Alexander Goldfarb, who believes the debt markets are gradually recovering, indicating a possible end to the downturn.

Financial health: CBRE led the pack with a staggering 500% increase in Q4 net income year-over-year, while Newmark and Colliers also posted impressive earnings. Despite a challenging year, Cushman & Wakefield managed to secure a profitable fourth quarter. The success of these firms is attributed mainly to their focus on diversifying revenue streams, particularly towards service and management sectors, which have shown resilience in the face of market volatility.

Diversification pays: The shift towards recurring revenue from management and consulting fees has proven beneficial for brokerage firms. CBRE, Colliers, JLL, and Cushman & Wakefield all reported growth in this area, underscoring the importance of revenue diversification in navigating commercial real estate cycles effectively. This approach has not only helped firms withstand the past year's challenges but also positions them favorably for future gains.

Challenges and opportunities: Despite the optimistic outlook, not all firms fared equally well. Marcus & Millichap, for instance, struggled with profitability as the investment sales business waned. However, the company's CEO, Hessam Nadji, noted a narrowing gap in asset pricing, suggesting an impending market correction that could revive buyer and seller activity.


Looking ahead: The brokerage industry's ability to weather the storm without resorting to further layoffs or cost-cutting measures beyond those initiated in 2022 speaks to the sector's resilience. Looking forward, executives are hopeful for a rebound, particularly in the latter half of the year, as more companies finalize their space requirements and capital market conditions potentially improve with anticipated adjustments in interest rates.


fear and greed index

According to the latest Burns + CRE Daily Fear and Greed Index, 66% of commercial real estate investors are on pause as they wait for more certainty on the timing of rate cuts.


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* Financial metrics are projections and/or forward-looking statements, and not guarantees of profit. See risk factors and disclosures in Private Placement Memorandum for more details.

**LP IRR is based on the weighted average of seven realized sales.


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