Monday Morning Scoop - More Traffic At Dallas Office Buildings Could Be A Thread In The Silver Lining Of A Recession
More Traffic At Dallas Office Buildings Could Be A Thread In The Silver Lining Of A Recession
One of the many lessons learned by CRE during the pandemic was that when it comes to bringing people back to work, location matters.
Now some experts predict office buildings across the board — regardless of location — could see a bump in occupancy if a recession-induced shift in the power dynamic forces employees back to the office.
DFW has enjoyed relative success compared to other cities in terms of return to office. Kastle’s Back to Work Barometer has consistently ranked the Metroplex among the top three office markets in terms of occupancy, but some submarkets have performed better than others.
Foot traffic data of comparable office properties provided by Advan Research Corp. showed that buildings in Dallas’ urban core averaged 72% of pre-pandemic foot traffic, compared to an average of 51% in suburban markets.
One factor that may skew the data in favor of the core is company size, said Trey Smith, executive vice president of CBRE’s Agency Leasing team. Major Fortune 500 corporations that occupied space in suburban markets like Plano and Frisco were slower to return to work than the smaller, professional services firms common in areas like Uptown and Downtown Dallas.
“The big corporate world has yet to really go all-in on coming back and making a commitment to those offices,” he said. “If you’ve got 80,000 employees across the world, you’re going to be a little bit more gun-shy on forcing everyone to come back, especially with the labor market as tight as it is.”
But that could change as company leaders react to a slipping economy.
Those who offered remote work as a recruitment and retainment tool may see a recession-induced rise in unemployment as an opportunity to enforce office attendance, Cawley Partners CEO Bill Cawley said.
“We are creatures of habit — we were used to going into the office, and now we’re not,” Cawley said. “Something has to break for that to change, and a recession might be part of it. If a bunch of people start getting laid off, employers are going to have more strength.”
A recent survey by consultancy company PwC found that just over half of U.S. companies have already reduced or are planning to reduce their workforce. More than 50% said they have initiated a hiring freeze, per the data reported by Forbes.
Thus far, inflationary symptoms like the rising cost of fuel have worked in favor of employees demanding to work from home, Kastle General Manager for the Southern Region Mike Slauson said. Gas prices have since fallen, but overall inflation is still elevated, and efforts by the Federal Reserve to curb consumer demand using interest rate hikes could result in a recession in the coming months.
“If they’re wanting to [have workers in the office], a recession gives them more leverage,” Slauson said. “We’ll start seeing unemployment rise, and the balance of power shift over to the employer versus the employee.”
This could be a good sign for some of DFW’s beleaguered office buildings, especially if owners take the time to optimize their space for hybrid work, which most agree is here to stay. VariSpace, a 305K SF flexible workspace in Las Colinas, has regained 77% of its pre-pandemic foot traffic, which is significantly higher than the 51% average seen across Advan’s sampling of suburban office buildings.
Kate Grumbles, Vari’s director of business development, thinks this is because VariSpace’s model accommodates flexibility. These types of buildings will be in high demand in the event of a recession, she said.
“If the recession creates this employer demand to have everybody come back into a space, they’re going to want to move quickly,” she said. “They’re going to say we need to be in now, we can’t wait on construction delays.”
Office occupancy is up 20% nationwide since January, according to Kastle’s data, but averages have plateaued in recent months. Slauson’s theory is that despite an increase in layoffs, workers still have the upper hand in the employer-employee dynamic.
“If you look at our unemployment rates, they’re still so incredibly low,” he said. “People that are being laid off at this point for recession purposes, they’re going out there and finding other jobs. It’s still very employee-friendly.”
The future of the office market is yet to be seen, JLL Managing Director Torrey Littlejohn said. Companies remain reluctant to commit to space or remote work policies in an environment that is still very much in flux, and assuming that the recession is temporary, it’s unlikely that company leaders will take decisive action any time soon.
“I think we still have a ways to go before people are going to have very set, tried-and-true workplace strategies,” she said. “As people are coming back into the office, we’re still trying to see how things are going to shake out with what’s the new norm of the schedule.”
By: Olivia Lueckemeyer