Office Supply
For the last little while, the most popular word in the office market community has been “supply”. Not enough supply, undersupply, supply shortage, you name it – supply is everywhere.
Every time I look for a CRE tenant client, I find the “supply”. Whether the vacancy rate in the market is 3% or 23%, it does not make any difference. You still have to search for the supply, write a report, reduce the options, inspect, shortlist, negotiate, and eventually sign a lease.
If you are a Lessee, you only need to pick one. Whether there are one hundred options or just two, in the end, only one will be leased.
If you are a Lessor, your supply may not be the one that is chosen. It doesn’t mean that your supply is bad. It merely means that the Lessee thought someone else’s supply was better for whatever the reason.
As for future supply, there is more on the way, just not as much as in previous development cycles. If that future supply is pre-committed, the remaining non-committed supply and the backfill supply don’t vanish. They come onto market at a different time, for a different tenant.
There is also the rest of the market made up of B, C and D grade buildings. Refurbishments will become a real value proposition and choice for tenants for many reasons, especially speed to market and reduced rents.
In essence, there is plenty of supply to go around. If the supply reduces, there is still choice, even if the vacancy gets to 3%.
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