Regional Report: Future of office

Published: 09/18/2020

A GPEC Virtual Series

The nineteenth installment of the Greater Phoenix Economic Council’s (GPEC) virtual series, ‘Regional Report,’ convened some of Greater Phoenix’s top commercial real estate and economic development leaders to discuss the Future of Office in a post-pandemic world. The webinar was moderated by Eric Sperling, managing director of the Social Television Network, and topics of conversation centered around the implementation of new technologies, effects on commercial real estate and opportunities for innovation. Panelists included:

“2021 is going to be a really productive year based on all the pent-up demand,” said Thomas Maynard, vice president of Business Development at GPEC. “We have a great market and now is really our opportunity to share our story, and we’re going to do that. We couldn’t do that without all of our support of our members and our communities.”

Scott Baumgarten, senior vice president at Transwestern, a Greater Phoenix-based commercial real estate company, agrees.

“We are pretty uniquely positioned to rebound and respond a lot quicker than other markets, especially the larger, urban coastal markets that have such a reliance upon public transportation,” he said. “Demand is on pause; the demand has not been terminated. There are so many different companies that are in-market or out-of-market looking to expand into Phoenix.”

GPEC currently has 234 active prospects in the pipeline with 176 of those companies seeking industrial space. Technology companies continue to relocate or expand to the region with Zoom, Robinhood and Tawain Semiconductor Manufacturing Company (TSMC) recently announcing the intention to make large-scale investments in Greater Phoenix. 20% of tech companies evaluating the region are venture backed, which points to the region’s ability to help startups grow and scale in the region.

While it’s still too early to tell what long-term impact COVID-19 will have on the work-from-home experiment nationally, companies in GPEC’s pipeline will ultimately need office space according the experts on the panel. Greater Phoenix has roughly 1.59 million square feet of office space under construction at the time of the September 15 webinar.

“I think we’ve discovered that working from home is a very defensive mode of work, and for the continuity of business, we need to be in an office mindset,” said George Forristall, director of Real Estate Development at Mortenson, a construction and real estate development company based in Chandler, Ariz. “We’re going to see the proof when a vaccine comes and how much we get back into the office, but I do think there’s going to be a large-scale movement back in office, to a flexible office.”

Cullen Mahoney, vice president at Trammel Crow, a real estate development, investment and property management company with just under 400 million of development in process in Greater Phoenix, predicts a 17% office vacancy rate by the end of the calendar year. Greater Phoenix’s current office vacancy rate of 12.5% is only slightly higher than last year’s low of 11.4%, according to GPEC data.

Baumgarten noted there has been minimal impact to Greater Phoenix’s sublease and shadow space, meaning, “there aren’t as many holes to backfill to compete with owners of office buildings that are trying to lease their space directly,” he said.

“We’ve seen pricing actually go up, so that tells us a few things,” said Baumgarten. “Owners are not overreacting to this immediate change to the office landscape. There’s still demand for high quality office space. Being able to attract, retain and recruit are going to be even more important.”

Rodney Riley, director of Acquisitions and Business Development at Caliber Companies, a wealth development company based in Scottsdale, Ariz., noted the importance of office space related to company culture and socialization.

“Most people get their socialization at the office,” that comes in the form of finding friends, spouses or forming informal sports-betting pools, he said.

Baumgarten echoed Riley’s sentiment by noting that if presented with the option to conduct the panel in-person vs. Zoom, the former is the preference.

“There’s so much to gain from the socialization and interaction that we can all have together. That’s just a broad-based view of the importance of office,” he said.

Panelists noted that the future of office, particularly building construction and amenities will look different as employee desires for enhanced safety have been exacerbated as a result of the pandemic.

“I think it’s going to drive just us creating more and better healthy buildings in the right location,” said Forristall. “They’re [employees] going to take a look around and say, ‘hey, do I really like doing this commute, do I really like, you know, the environment I’m working? What is the air quality that I receive,  what is the filtration of the of the air that I have?’ I think that’s going to force a lot of landlords and developers like ourselves to really take a look at what we’re doing”

Mahoney noted specifics of a deal in North Scottsdale, Ariz., related to technological advancements and innovative solutions being implemented as a product of the virus.

“We have adjusted our mechanical system to allow for more outside air. We’ve increased our filtration system to a higher MERV rating,” he said. “We’re also going to be pursuing WELL Certification, which I think will be the first building in Phoenix to achieve that accreditation. It’s really focused on testing and monitoring air and water quality in addition to some other key metrics, but the certification itself really takes the view of the tenant’s health.”

Mahoney noted additional advancements such as moving to a completely touchless model within high-trafficked areas like the lobby and restrooms, so doors and fixtures remain untouched.

While advancements are certainly being made and COVID-19 is forcing all of us to innovate and adapt, Riley is optimistic about the region’s future.

“I think it’s an exciting time to be in this industry and change is inevitable,” he said. “I am absolutely bullish on the office market here in Phoenix. Someone will be foolish to bet against Arizona in the long-term and we’re poised to make great strides.”

As a region, we’re on a relentless pursuit of innovation and technology. Companies in Greater Phoenix are committed to changing the game and the region’s ecosystem enables success. If you’re a business is looking to expand or relocate, contact the GPEC team online, via email (info@gpec.org) or give us a call at 602-256-7700.