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2.8.2022

2022 Office Real Estate Update Amid the COVID-19 Omicron Variant

Despite some initial optimism about the vaccine rollout, plans to return to work going into the holidays have been disrupted, first by the Delta variant and then by the highly contagious Omicron variant. The surge in cases has given employers pause about how and when to return to their traditional brick-and-mortar operational models.

In 2022, people are wondering what’s next for the office real estate sector in the Midwest and beyond, and the Farbman team has some thoughts.

Growing Optimism

While Omicron was a clear setback to the wave of in-person office returns, there has been optimism by the variant’s less serious symptoms and encouragingly short timeframe for an expected drop in post-spike case numbers. Business leaders expect a quick recovery as the impact subsides, and many companies that temporarily delayed in-person return-to-office plans have already announced a new timeline—including big players like Ford Motor Company, which announced plans to start bringing people back in March 2022.

Office Real Estate Segments to Watch

Economic optimism is also on the rise. Prior to Omicron, Farbman’s own office portfolio was thriving, and we’re hardly unique. Leasing and absorption numbers are expected to remain strong in 2022. As far as specific tenant types and market segments currently showing strength, we’re seeing active upticks in mortgage brokerage, medical office, financial services and medical education.

Another industry segment to watch is cannabis. While there’s been some hesitation from some growers because of the differences between state and federal legalization (legal in many states, while still technically illegal on the federal level), it’s clearly gaining popularity as a sector. Modern dispensaries look more like an Apple Store or high-end boutique vs. their modest mom-and-pop predecessors, and many retail brokers are specializing in helping cannabis businesses navigate the office market as they expand.

Update on Office Health & Safety

For all the chatter about office safety issues and design changes that dominated discussion in the earliest days of the pandemic, there’s been surprisingly little push to make those investments. We simply aren’t seeing the dramatic infrastructure upgrades and big design changes some predicted—in fact, for every tenant looking to reduce their office footprint, we are seeing others taking on more space as their industries grow. In that respect, the pandemic has disrupted the larger cyclical trend of reduction and expansion that characterizes a healthy office real estate market.

Office Amenities & Activities

Many office amenities have grown in demand, causing tenants to prioritize things like access to conference centers and other flexible facilities that can accommodate the occasional on-site meeting or event. On-site dining, on the other hand, has fallen out of favor as more offices adopt a hybrid approach and the rise of food delivery services and apps has introduced convenient new options.

Businesses are still asking about exercise facilities, but it remains to be seen how many are using them as anything other than a recruiting point. Understandably, inquiries into outdoor amenities have increased—from picnic tables and walking paths to outdoor games and activities, office building owners and operators are looking to introduce these amenities more to help their properties stand out.

Office is Here to Stay

The single biggest office real estate storyline during the pandemic has been the durability of businesses’ drive to retain their in-person operations. What’s clear is that the desire to be together and connect is hard-wired into our collective consciousness, and there is growing recognition of the power in-person engagement fuels in terms of creativity and collaboration.

Our prolonged inability to get together has, in many ways, increased our desire to do so—and it’s certainly contributing to the continued strength of the office real estate sector.

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