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Top Office Owners Don’t Want Only Offices

The office market is in a state of flux, and future demand relies on factors that have not yet played out. As a result, investors are considering other commercial areas.

NEW YORK – Many of the most prominent office developers in the United States are shifting gears, looking to buy or build real estate that is not office.

The COVID-19 pandemic and rise of remote work have reordered American habits around the workplace, dimming the importance of office towers that populate city business districts. In a time of low unemployment, many companies have been slow to demand a return to the office, and it’s not clear how many will do so if the economy changes.

For now, other real-estate sectors, especially residential, seem to offer more promise.

“Office is in a state of flux these days,” says Rich Gottlieb, president of Keystone Development+ Investment, a developer specializing in offices that has four residential projects in the pipeline in South Florida and the Philadelphia region. “But there’s still a housing shortage out there.”

Developing state-of-the art office space requires an enormous capital investment to meet workers’ desire for the highest possible air quality, energy efficiency and amenities. The economics of the residential business are currently more compelling, says Tony Malkin, chief executive of Empire State Realty Trust.

Malkin says he’d still buy office buildings at the right price, but apartment-building acquisitions produce an immediate return and require “minimal capital expenditure.”

Residential projects’ popularity is affecting the apartment pipeline. Close to 500,000 units – the most since 1986 – are expected to be completed in 2023, according to a CoStar estimate. That’s up from 368,000 in 2019, the firm said.

Source: Wall Street Journal (01/10/23) Grant, Peter

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