Office market rents will drop, NAI survey respondents say
NAI Capital took a look at regional trends from the last 10 years but also asked office market professionals where they see the market going in the near future for its COVID-19 Impact Survey, which was released April 13.
“The financial impact on coworking spaces and office landlords in general will likely grow exponentially the longer people are required to distance themselves from workplaces,” NAI Capital said in a news release.
In the survey, NAI Capital found that more than two-thirds of respondents expect rents to decline as market conditions struggle to keep up with pre-pandemic rates.
Existing tenants are asking for some form of rent relief as weeks and months go by while many businesses are closed, and any businesses that leave will leave behind spaces with lower rates than the ones they had.
The impacts come at the end of a decade of growth.
In Ventura County, asking rent went from around $2 per square foot in 2011 to around $2.50 per square foot at the start of 2020.
As asking rents go down, NAI Capital expects sales prices will also decline.
Vacant square footage will increase as some businesses won’t be able to emerge from the crisis, and the survey said 65 percent of respondents believe that owners pushing lots onto the market to reduce their burdens will depress the overall office market.
More existing, already-built space coming onto the market means the demand for construction will likely go down.
With the environment changing, 88 percent of survey-takers said landlords will offer more concessions to keep tenants, with many landlords actively renegotiating leases, offering rent abatement or deferring rent to keep spaces occupied.
Additionally, almost all of the respondents (91 percent) said they expected leasing volume to decline until some certainty is restored for business owners. They said they need tenants to be rethinking their space needs, including work-from-home strategies to reduce occupancy costs.
PLAN CHECKS IMPACTED
In some parts of the state, construction has been shut down and deemed non-essential, but on the Central Coast some projects (especially those in the public sphere, like roads) have been deemed important and necessary to continue, with some modifications on how business is normally done.
In San Luis Obispo County, only emergency permits are being issued, such as those that are required to fix an immediate threat to health and safety.
These permits include work required to fix electrical, plumbing or mechanical problems, structural damage, landslides and failed septic or sanitary systems.
The county is still doing plan review on previously-submitted projects, with the goal that when the shelter-at-home order is lifted projects will be ready for processing.
The city of Santa Barbara Planning & Building Department is moving to 100 percent digital plan checks, electronic signatures and virtual building inspections.
To do a remote video inspection, the permittee must have either Google Duo or Face Time installed on their smart phone. Buildings too big or complex for a remote video inspection can still have a field inspector come out, but the city building inspector has to remotely partially approve the inspection.
Other governmental organizations are also shifting to virtual and remote planning. The Ventura County Planning Division announced that while the county’s government center is closed, the planning division is still available by email, and people can send their applications to email@example.com for processing.
RESOURCES FOR BUILDERS
Construction and general contractors associations have been helping their members figure out how to do business.
The Santa Barbara Contractors Association sent out a list of updates and resources for members to use, including the template of a letter drafted by the Association of General Contractors of California, in case employees or a work site face questioning from law enforcement officers over the work being done. The letter can be personalized and updated, but it is meant to act as guidance, not as a guarantee against possible actions from law enforcement officials.
The San Luis Obispo County Builders Exchange also has resources members can use on its website, where the organization is hosting the OSHA guidelines on preparing workplaces for operating during the current health crisis. It also includes a basic FAQ section from Humana, explaining what the disease is, what symptoms look like and how coronavirus spreads from person to person.
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