Downtown office vacancy

Issues concerning Downtown as described by the Downtown Council. River to 31st Street, I-35 to Bruce R. Watkins.
earthling
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Re: Downtown office vacancy

Post by earthling »

beautyfromashes wrote: Thu Sep 16, 2021 7:33 am
earthling wrote: Thu Sep 16, 2021 7:14 am More indication WFH could impact office reduction longer term...
https://www.bizjournals.com/kansascity/ ... vings.html

"The survey of 1,250 businesses by Digital.com found 39% of surveyed companies said they were considering closing some of their additional office space within the next six months – a decision fueled by desires to cut costs and the rise of remote work."

"...only 14% of companies surveyed said they would require full-time returns to the office."
Why do I feel like this is just a big business messaging for layoffs with technology making it easier to operate with less people in general?
^With office jobs growing along with tight office employment market, unlikely the case. I've left corporate IT a couple years ago (for private equity investing) yet near daily contacted for IT jobs in KC and elsewhere in US. Companies are offering WFH hybrid as a key perk to attract talent, not as a tool toward layoffs. I sense desperation to match skills if anything. Am often contacted for jobs I'm barely qualified for, including biz program manager, not IT. KC's fastest growing job category is pro biz services and STEM (office jobs) as generally the case for US too yet office use may reduce for longer than expected.

More office employees are starting to expect WFH hybrid while companies probably like the opportunity to reduce office space. Looks to be more of mutual progression. If this sticks for years, may not see as much spec office construction for a while.
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Re: Downtown office vacancy

Post by earthling »

This report claims nationally only about 10% of office workers visit office 3-4 times a week as of Aug (down from 16% in April) due to Delta holding back return....
https://pages.robinpowered.com/hubfs/Ro ... Report.pdf

The management of 2nd/Delaware apts in RM estimates that 40% of residents are working from home...
https://cityscenekc.com/going-green-pay ... -one-year/
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Re: Downtown office vacancy

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JLL Q3 report. As expected, continued negative absportion. KC's Pro Biz jobs appear to be growing better than US avg especially on MO side but not enough yet to offset downsizing. However report claims there is more interest in higher quality Class A as companies downsize.
Delayed statistical effects of the ongoing COVID-19 pandemic continue to
affect the Kansas City office market. Kansas City is on track to match
negative absorption amounts not seen since 2009 and total vacancy rose to
a nine-year high of 16.2%. However, these are effects of a COVID-induced
shift to downsize and seek higher quality space. Class B total vacancy has
risen to 16.4% while Class A total vacancy is only 15.9%. Q3 saw the largest
amount of sace leased since Q1 2020, 66% of which occurred in Class A
product. Additionally, Class B average direct rents increased only 0.3% this
quarter, while Class A rents increased 2.8%, as a result of tenants’ “flight to
quality” being seen around the country.

As companies’ lease expirations arise for the first time since the onset of
COVID-19, many are choosing to downsize or give up space to
accommodate for increased remote work. Companies like Deloitte who
consolidated from two floors to one floor in Town Pavilion, are embracing a
hybrid work style and requiring less office space.

Outlook
As Kansas City office tenants continue to adapt to the future of hybrid work,
attracting employees back to the office and attracting new talent via high
quality office space will be top of mind. Newer Class A space will be in high
demand even as companies downsize, and negative absorption will persist
through the end of the year.
Image
https://www.us.jll.com/content/dam/jll- ... s-city.pdf
earthling
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Re: Downtown office vacancy

Post by earthling »

Cushman Q3 report. According to this Crown Center has 2nd worst vacancy in metro, behind Northland and NoJoCo with 3rd worst...
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https://cw-gbl-gws-prod.azureedge.net/- ... 67366143f4
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Re: Downtown office vacancy

Post by beautyfromashes »

earthling wrote: Fri Oct 08, 2021 1:23 pm Cushman Q3 report. According to this Crown Center has 2nd worst vacancy in metro, behind Northland and NoJoCo with 3rd worst...
Lost their second largest renter, Children’s Mercy.
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Re: Downtown office vacancy

Post by earthling »

^TMC also in Hallmark buildings. Heard they are planning to re-consolidate into TMC campus next year along with longer term WFH. And a couple law firms have moved from CC to CBD IIRC.
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Re: Downtown office vacancy

Post by DaveKCMO »

Not to mention most Hallmark employees are still remote, as are many at TranSystems and BNIM. Still active tenants, of course, but a relative ghost town.
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Re: Downtown office vacancy

Post by shinatoo »

earthling wrote: Fri Oct 08, 2021 2:16 pm ^TMC also in Hallmark buildings. Heard they are planning to re-consolidate into TMC campus next year along with longer term WFH. And a couple law firms have moved from CC to CBD IIRC.
*University Health
earthling
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Re: Downtown office vacancy

Post by earthling »

^Ah right, renamed.

Separately, several of the local agencies think absorption will turn positive by next summer. That seems optimistic but a trend that might occur is Class A upgrades using less space and perhaps some Class B/C turning residential. That just might eventually justify more spec Class A. If downtown can't draw suburban companies to relocate, encourage them to open flex co-working secondary locations (WeWork, PlexPod) as an opportunity to draw broader range of talent who might prefer urban living - some could possibly bypass KCMO income tax if executed properly but would at least bring spending/foot traffic and fill buildings. Hello Cerner, Garmin, Tmobile. Urban-minded employees working in burbs should encourage their companies to do the same.
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Re: Downtown office vacancy

Post by earthling »

Brought this up starting back in January...
earthling wrote: Thu Jan 14, 2021 6:08 pm ^One possible positive trend that might happen for downtown even if overall office demand shrinks...

As leases expire over time, for some companies needing less space due to relatively more WFH employees, they may upgrade to less space in a newer/upgraded Class A building (or WeWork type flex conversions). At least those willing to move. That might allow for new Class A construction, maybe, however potentially a decrease in overall space as some Class B/C buildings convert to residential. Just a possible scenario, not implying likely.
Looks like it's more than just possible, starting to happen elsewhere...
https://www.bizjournals.com/kansascity/ ... ce-q3.html
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Re: Downtown office vacancy

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Cushman National Q3 report...
https://cw-gbl-gws-prod.azureedge.net/- ... 0f1f025340

Absorption positive in a few markets but mostly negative and expected to continue for most til mid next year. Metro KC's vacancy not improving, now about same as US average at 17.3% with many markets over 20%. ATL, AUS, Chicago, Cincy, COL, DFW, DEN, HOU, MSP, PHX, SFO all over 20% vacancy. The upside is that for any big office city site/HQ selection those metros have a lot of space available. The downside is that downtowns tend to be worse than suburbs and impacts foot traffic.
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Re: Downtown office vacancy

Post by earthling »

CBRE Q3 KC report. JoCo now seeing positive absorption, city core still negative. Suburban return with city still seeing negative absorption is common in most metros. Colliers will be most comprehensive report but comes out last. Curious that BLS shows office jobs growing faster on MO side than KS side yet KS side doing better with office leasing. May mean companies on MO side have longer term remote working plans so perhaps downsized lease renewals.

Image

https://www.cbre.us/research-and-report ... ew-Q3-2021
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Re: Downtown office vacancy

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Colliers Q3 KC office report. They track the most buildings, as low a 10K sqft. Vacancy not as poor as other reports implying smaller buildings doing better but still rising with negative net absorption in urban core last quarter. Burbs showing slight positive absorption, common trend in some other markets. Even when absorption returns, may take a while to gain back what's been lost.

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https://www.colliers.com/en/research/ka ... ice-trends
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Re: Downtown office vacancy

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Crown Center office vacancy continues to increase, Shook Hardy has vacated 6 floors now available for direct lease. JLL mentions they will target trend of biz reducing space and upgrading to less, higher end space but so far DTKC Class A vacancies are still growing faster than absorption (see above post). According to Colliers KC vacancy is supposedly one of best/lowest in nation (Cushman shows KC about average) but either way likely to increase over time, and potentially after pandemic if WFH sticks at a fairly high rate.
"Tenants might not need (the) 40,000 square feet that they had in 2019; they might be looking at 26,000 square feet now, which is a full floor at our building," he said. "They understand that their entire workforce isn't going to be in there Monday through Friday ... and so they're saving by leasing less square footage, but they're really wanting to upgrade to a true Class A facility."
https://www.bizjournals.com/kansascity/ ... ass-a.html
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Re: Downtown office vacancy

Post by kenrbnj »

Suffice to say, based on conversations had personally between leadership of companies:

"The world is being led to believe we collectively work efficiently from home. The facts and metrics suggest the opposite is true. We believe flexibility to 'work from home' will be a selectively apportioned privilege. The end-game will be a full complement of employees will be working from the office once the pandemic subsides."

Several of the braver CEOs (such as Jamie Dimon of JP Morgan Chase) have already mandated the "back to work in the office".

On an ongoing basis; it is unclear how any company will bring new employees on-board, promote personnel from within, etc.

All said: I will state with 100% confidence and certainty that we will all have a cubical, an office, a desk, or whatever -- IN AN OFFICE. Smart money is to have office inventory for that inevitability.
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Re: Downtown office vacancy

Post by KCPowercat »

I agree with all that except "braver CEO's", I feel they are being foolish rn and their employees leaving would support that. I think that's most CEO's endgame but forcing everyone back especially when it's not over isn't brave.
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Re: Downtown office vacancy

Post by earthling »

Agree that most will be back in office after pandemic but there will highly likely be a higher % WFH or hybrid than before pandemic long term. Some companies have WFH/remote figured out, some were heading that direction before pandemic anyway. And in roles where there is a shortage of workers, WFH option is a key bargaining perk to pitch. It's here to stay, just a question of to what degree long term. I'd be surprised if over 30% remote/hybrid overall but for some companies it probably will be. Enough that some will reduce office footprint long term.

I worked mostly remotely for about 8 years before pandemic (as a digital nomad) with no dedicated desk as did most in my role across US. Worked out fine with no consideration from company to remove option even when initially there were some kinks.
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Re: Downtown office vacancy

Post by earthling »

Cushman Q4 report. Still a lot of negative absorption, mainly Class B. S JoCo hammered last Q with a lot of apparently shrinking leasing activity. Crown Center/Xroads improved a bit Q4 but still over 26% vacancy.
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https://cw-gbl-gws-prod.azureedge.net/- ... 55f17c47b8
earthling
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Re: Downtown office vacancy

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CBRE Q4 report shows negative Class A absorption for metro. Both reports (with above) agree downtown A/B vacancy around a not so good 20%.
Image
Negative net absorption for the quarter was driven by South Johnson County with negative net absorption of 391,960 sq.
ft. The majority of negative net absorption came from the Aspiria campus with multiple larger tenants vacating space. For
the year the suburban Class A market performed relatively well in spite of the negative net absorption in Q4 2021, with
only a slight negative net absorption of 79,454 sq. ft. for the year. North Johnson County led the market for positive net
absorption in the quarter with 37,325 sq. ft. Major tenants taking space in the overall market included Academy Bank with
53,000 sq. ft. at 1201 Walnut in the Downtown submarket; DiPasquale Moore with 30,000 sq. ft. at Plaza West in the Plaza
submarket
; and DineEquity with 20,506 sq. ft. at 8700 State Line in the North Johnson County submarket
http://cbre.vo.llnwd.net/grgservices/se ... c5dfeec84a

Colliers tracks far more space in KC but report probably won't be out for another month or so.
earthling
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Re: Downtown office vacancy

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JLL Q4 report for KC metro. Notes trend of more downsizing...
• Net absorption in 2021 totaled -1,429,809 s.f. as submarkets across the metro see companies choosing to downsize.
• Vacancy rose 1.0% to 17.2% in Q4, led by the CBD and South Johnson County submarkets, rising to 16.6% and 16.8% respectively.
• The market remains tenant-favorable with many landlords providing elevated improvement allowances in new leases, characterizing the flight to quality trend.

The uneven recovery from the COVID-19 pandemic remained a primary force affecting the Kansas City office market in 2021. Companies continue to downsize and consolidate in their existing spaces and in relocations. Net absorption totaled -1,429,809 s.f. in 2021, a five-year low. A significant portion of that figure is the result of changes in space presentation at Aspiria, but net absorption was negative in all major submarkets in 2021.

In Q4, Optiv Security moved within South Johnson County from the Aspiria campus to Town Center, downsizing by nearly 80,000 s.f. Other companies like SelectQuote at Aspiria and OPx, HomeAdvisor at 119th St. Tech Park and Children’s Mercy Hospital in Crown Center are listing more than 50,000 s.f. of office space for sublease. These kind of decisions are being made throughout the metro area, resulting in rising total and sublease vacancy rates, which are up 2.4% and 0.8% respectively from this time last year.
Image
https://www.us.jll.com/content/dam/jll- ... s-city.pdf
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