Commercial Real Estate Faces Pandemic’s Aftershocks, Sees New Opportunities
News Based on facts, either observed and verified directly by the reporter, or reported and verified from knowledgeable sources.
By Davi Schulman
The Building Owners and Managers Association (BOMA) of Westchester County held its Annual State of the Market Luncheon on Jan. 16 in White Plains, an opportunity for local realtors to hear from an expert panel about the “current and future conditions in Westchester’s commercial real estate industry.”
Anticipation filled the room as BOMA President Stephanie Manfredi introduced an experienced panel, which included Andrew Weisz, RPW Group president, Bruce Berg, Cappelli Development Company CEO, Jason Black, Diamond Properties vice president, and Howard Greenberg, Howard Properties president. The panel was moderated by Glenn Walsh, Newmark executive managing director.
The panelists agreed that the commercial real estate market is shrinking as it becomes increasingly expensive to build office space. Construction and material costs have risen since the COVID-19 pandemic, exacerbating an already competitive market.
When asked to compare the real estate market today with the past, Greenberg muttered an “Oy vey!” before stating, “There is no question that the pandemic has been the biggest economic downturn we’ve had, because it wasn’t just economic; it was lifestyle.” In other words, the office closures and transition to remote and hybrid work resulting from the COVID-19 pandemic continue to shape the commercial real estate industry. The pandemic upended any sense of normalcy in the workforce, forcing real estate professionals to adapt to this new reality.”
As major companies like Amazon, JP Morgan, and Boeing recently reinstated their pre-pandemic mandatory five-day work week policies, Berg believes more companies will head in a similar direction. This shift back to in-person work will likely benefit the commercial real estate industry that relies heavily on leasing and selling office space.
Still, there exists a discrepancy between the industry’s supply and demand; while demand for office space returns, it is in small supply. When searching for industrial or flexible work spaces, “be ready to hear prices like you’ve never heard before,” Greenberg warned the audience of trade professionals.
He emphasized the importance of asking landlords about their debt. “It’s a new world…we used to assume that every landlord is financially viable; we just can’t assume that anymore,” said Greenberg.
To help address such challenges, companies are getting creative. Black’s Diamond Properties began a successful flexible workspace program called Velocity. Even though many people still have the option to work remotely, they seek the work-life separation that comes from working in an outside office. Velocity has gained “significant interest” from these workers.
Westchester residents have likely heard whisperings about the new District Galleria development in White Plains. According to the District Galleria website, this will be “the largest transformation of a traditional enclosed shopping mall into a dynamic mixed-use residential and retail destination in the New York metropolitan area.”
Led by Berg’s Cappelli Development Company in collaboration with Aareal Bank in Germany and Pacific Retail, almost two years have passed since the project began. The coordinators are currently evaluating the project’s potential impact on the local area and are hoping to receive zoning approval in the next three to four months. The District Galleria will span a total of 11 acres of infill area in the downtown. Due to the magnitude of this project, the complex will be built in stages starting later this year and ultimately consisting of six to seven buildings total.
White Plains will also see a new headquarters for the New York Power Authority on Hamilton Green: a state-of-the-art sustainable building with geothermal solar panels and photochromic glass, appropriate features for the utility’s extensive focus on renewable energy.
Greenberg explained that tenants now have different expectations for their building standards and amenities. Building standards have elevated and tend to include more expensive materials. Black remarked that the future of material costs is somewhat ambiguous due to the new presidential administration and potential of tariffs.
Other changes reflect this new reality. While people used to expect dining options in their office buildings, cafeterias have been scaled back due to the COVID-19 pandemic. Now, tenants prioritize “shiny things” that increase the building’s attractiveness such as gyms and other lifestyle amenities that can be enjoyed more independently.
An audience question about the role of artificial intelligence in commercial real estate prompted Black to comment on AI’s potential as a productivity tool for human resources and legal uses. When people have smaller teams and wish to “work lean and mean” (more efficiently), AI can serve as a helpful tool.
Weisz concluded that despite the “doom and gloom of the market…we’re headed in the right direction.” The influx of young people, families, and empty nesters into Westchester’s real estate market makes the county a “vibrant place for the future.”
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