Real Capital Markets Office Report: Investors Watching Coworking Impact

June 2019

Real Capital Markets Report: Office Investment Still Steady

Investors Move Outside Urban Core; Coworking a Risk to Investment Values

At the halfway point of 2019, many investors remain cautiously optimistic about office investment activity, predicting that it will remain consistent into 2020. Real Capital Markets’ Mid-Year Office Investor Sentiment Report also noted cautions about the growth of coworking space. Will it impact investment values, particularly in the event of a market downturn?

As noted in this story by Commercial Property Executive, a vast majority (87%) of RCM survey respondents said coworking was a moderate to high risk to investment values. Of that total, 37% said the market could be saturated. Investors are watching this segment, given its rapid expansion and exposure to any market downturn.

The report also noted:

  • Value add is a big draw for investors — Survey participants were feeling positive about value-add assets in suburban markets, especially those with easy access to cities and highways and near communities with good schools. Some investors said that location was more important than building quality. Suburban assets and those in secondary markets were seen as a good relative value when compared with trophy assets, where pricing was higher.
  • Coworking is helping the market by pushing vacancies down, creating an incubator mindset where larger owners can help grow relationships. It is also opening the way for further disruption in office leasing, where quicker, less expensive leasing becomes more of the norm.
  • Operational challenges, including the cost of tenant improvements, are a concern. Tenant improvement costs in some markets, for example, have jumped to $110 per square foot from $60 to $80 per square foot.