What is the expected effect of a recession on commercial office space?
 We are looking for office space and my thought was to lock down a sublease for 2 years and see what the market is then, thinking there will be more availability and better rates. A colleague has suggested that we better lock down a long term lease because rates will go up. That is not what I am reading in any of the reports  and outlets I follow. What do you think?
[{"id": "ie223bj", "text": "I am not a CRE expert, but do work in this field. We are seeing many companies looking to give back space once their lease (if not before) ends. I believe there will be a surplus of office space available in the coming years which should drive the cost down. BUT, I'm just an idiot on the internet, so don't listen to me.", "replies": [{"id": "ie2ynzd", "text": "The question is are they going 100% remote, are they downsizing or just want to be in a different area of the market? I am seeing a chunk of groups looking to downsize - why do we need a 50 person conference room in our space when a teams  meeting works?", "replies": [{"id": "ie31nv8", "text": "This is my experience as well. Downsizing their current space due to more people being hybrid or WFH.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ie22u8w", "text": "Depends on what kind of office space. In general though there should be downward market forces on rental rates and therefore sale prices going forward. Vacancy is only going to increase with higher and higher unemployment. In my experience property owners have been willing to accept higher vacancy in lieu of lowering rental rates so far but at some point vacancy becomes too high. \n\nIt's a bit different in the class A or trophy class due to the \"flight to quality\" trend. I don't really anticipate that trend having much staying power though. At some point this property class will experience falling rates it just will take a little longer than Class B/C.\n\nAll just my opinion. Would love to hear some other perspectives on it.", "replies": [], "depth": 1}, {"id": "ie267oj", "text": "Rates will go up due to inflation, so locking in now locks in whatever escalation rates you have. \n\nEach market is different so things can go up or down. \n\nReal estate is but a small part of your overall business expenses, and seems a bit silly to change everything about your business based on speculation on rates now. \n\nIs your business growing or shrinking? What about in 5 years? What are your competitors doing? Do you even need an office?", "replies": [], "depth": 1}, {"id": "ie2yi22", "text": "Depends on your size and location. Big Box stuff - 50K SF will be around. It is simply not leasing and is not going to lease anytime soon. Smaller spaces 1500 - 5000 SF are leasing and these good smaller subleases are tough to find in my market. \n\nWhat I recommend to my tenant clients is to try and find a space that is going to work for your business where it is at now and with some flexibility for future needs. I am hesitant to play the rate game because you have to factor in the costs of moving including the opportunity costs. It is a pain and if you are moving constantly that can be a good chunk of time and money out the door. \n\nI do not think prices at least where I am at will take a significant hit even if there is a recession. This is in part due to the overall construction costs of building out spaces, and the fact that AZ typically has a shorter lease term in general so many groups have already adjusted. Then there is also the fact the some office is getting converted to multifamily and industrial. Essentially there has been very little office construction over the past 15 years so the supply this time around is not out of balance. Looking at the modern multitenant buildings, they are cleaning up with record lease rates. One example is a Class A building in a suburban market is 100% leased with credit tenants prior to CofO. There are others that are stabilized and getting near top of market rates. Back office call centers with large blocks of space though are stressing.", "replies": [{"id": "ie34kgp", "text": "I work in suburban class A office/retail with spaces between 1200-8000 sq ft. New tenants are maxing out the leases at 10 years.  Even this year\u2019s renewals are asking for the 10 year max.  Location and what type of building/tenants are you marketing to.  Many factors.", "replies": [], "depth": 2}, {"id": "ie3l8ap", "text": "&gt;Smaller spaces 1500 - 5000 SF are leasing and these good smaller subleases are tough to find in my market.\n\nThis matches what I'm seeing in the intermountain west.\n\nI'm not in CRE but I'm a business owner, looking for something this size to give some employees a space. The good small office spaces are rented fast.", "replies": [], "depth": 2}, {"id": "ie4epp6", "text": "that is helpful, thank you!", "replies": [], "depth": 2}], "depth": 1}, {"id": "ie2ynde", "text": "Office Space is only at 40% occupancy in the US now. I wouldn't touch it unless I knew of a good way to convert it to another use. I can't see rental rates going up - smart, competitive companies know they do not need anywhere as much office space as they used to. It's done.\n\nAt some point these buildings are going to start getting converted into something else. That might stabilize the rates as it would reduce inventory, but I believe a lot of building owners are going to take years before they ever realize the market has moved on.", "replies": [{"id": "ie3nxsk", "text": "Into what? I could see maybe hydroponics.", "replies": [{"id": "iebl3xs", "text": "I really couldn't say - if I knew what the answer is (and maybe it is hydroponics), I'd sure be looking to get in early. \n\nBut putting people in cubicle farms to pretend to work all day isn't going to be the plan for competitive companies - hiring the best people from anywhere will be.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ie30ajj", "text": "office space is not being utilized. my company has a 50 person branch office in houston.. it's basically the branch manager going over there to pick up people's packages and collect mail these days. they will still have a branch office, but it will be much smaller", "replies": [], "depth": 1}, {"id": "ie32h9g", "text": "Really depends where you\u2019re at. If you\u2019re in Miami, Nashville, Austin or another S.E. hyper growth City it probably makes sense to lock something in. Most other large tech centers are going to be flat or even have rates back up in 2022 and even into 2023. Many of the large shops (JLL/CBRE/C&amp;W) are forecasting major West Coast markets to bounce back in 2023 at the earliest.", "replies": [], "depth": 1}, {"id": "ie4s8hn", "text": "Office broker here - as stated before the suburban office market is just fine. I sell a ton of office properties through the Midwest and most of what I am Selling or reviewing currently is very well occupied (90-100%). The smaller units (700SF - 5000SF) are all remaining very well occupied in my markets which is driving rents upward.", "replies": [], "depth": 1}]