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Across the Globe: One Year Later

Across the Globe
By: Steve Lewis

A worldwide pandemic is just that; its impact spreads across the globe. That includes its impact on CRE, which is why SIOR Report reached out to SIOR experts in Europe, as well as the U.S., to compare and contrast how their markets have been affected, what they’re doing to respond, and how they believe the future will unfold.

“This situation is totally unlike what any of us had to deal with before in all our careers,” says Paul Danks, SIOR, director, Portfolio Solutions with DeVono Cresa in London, and president of the SIOR European Regional Chapter. “It’s very different from the situation that arose following the great financial crisis in 2008-9; here, it was almost like the world switched off overnight.” He asserts that COVID “affects us equally across the world.” CRE professionals, he continues, “saw plans in place—strategies in place—stopped almost dead or more appropriately, paused immediately.” His clients, he notes, are 90% in industrial and logistics.

Danks also shared the following observation from a Deloitte third quarter survey: “The pandemic is disrupting the value proposition of CRE, especially for offices, retail and hotels, causing most CRE companies to re-evaluate existing portfolios.”

Jay Olshonsky, SIOR, president and CEO, NAI Global, in New York City, agrees. “We’ve never had anything like this, and as far-reaching,” he says. “People are fearful; normal activities like going to work make you sick or kill you.”

The Deloitte report also made the following assertions:

“With much lower demand for leased space, CRE companies face rising pressure to retail costs. To recover and prepare to thrive over the next 12 months, the CRE industry should focus on managing costs to improve operational efficiency and repositioning the value of existing CRE spaces.”

“There is also a shift in market dynamics; people are starting to avoid overcrowded cities such as San Francisco, New York, Toronto, Tokyo, and Paris.”

“In most instances, companies could increase the value of their properties by deploying smart building design and maintenance capabilities and offering more relevant services to tenants and end users.”

In Germany, the market “is more or less at a standstill,” says Hans-Ulrich Berendes, SIOR, the CEO and founder of Berendes & Partner Consulting GmbH, although adding that “We are quite optimistic we will not be affected in the office market as some tell us. It depends where you’re coming from.” He concedes, however, that “at the moment the market is absolutely down.”

In retail, he notes, “They really have problems. Today we have a total shutdown in Germany again till the Jan. 10, and we’re worried they will extend that. The only one profiting is Amazon.”

The logistics business, he continues, will increase. “Rents are going up, yields going down,” he shares. “The most horrible part is hotels; banks are not financing anything anymore.”

“Industrial and logistics have seen exponential growth in particular,” adds Danks. “There has been increased demand for warehouses around metro centers globally to service [online] demand. What we’ve not seen is a situation where rents have shot up; they are fairly stable, but the trend is upwards.”

In offices, he adds, “We’ve seen more competitive pressure in terms; there has been a decline in rents in primary city centers, but there has not been a catastrophic decline. The main challenge has been ‘Can we afford to pay rent given nobody is in the office?’”

“Experts in Germany forecast a reduction of 10% up to 20% of office space demand,” adds Tobias Schultheiß, SIOR, managing partner, Blackbird Real Estate GmbH. On the industrial side, he adds, “Transactions were delayed and there were failed transactions. Given the contact ban and the necessity to close retail shops, bars, and restaurants, we recommended to our clients owning such properties to not start marketing activities, since these circumstances will not lead to an acceptable pricing.”

Tomorrow is here; is now. What would have taken years to happen is here, with us, and we will have to adapt to it.

“We’ve seen an overwhelming number of corporations shed footage, either on expiration, or offering space in a sublease manner,” shares Tony Fluhr, SIOR, senior vice president-brokerage at NTS Development Company in Louisville, Ken. “I think we’ll continue to see that over the next two to five months.”


SIORs, tenants, and landlords are all responding as best they can to the changes brought on by COVID, says Danks. “If leases are coming to an end, and companies are considering relocation—particularly in an office location—the focus for the landlord has shifted to ‘Will I continue to receive rent payments?’ Tenants who are not occupying their offices ask if they can pause or defer rent payments or use the fact their lease is coming up for renewal as an opportunity to negotiate much better terms.” This has been most pronounced globally in retail, he adds.

The pandemic has led, he continues, to accelerated recognition that the occupier and landlord cannot continue to have an adversarial relationship. “Any sensible landlord has entered into a dialogue with tenants, put an arm around them, and said ‘We’re all in this together, we value your occupation; how can we work together for the future?’” he says.

As for his own clients, he reminds them they have more options now in offices. “Look at London,” he offers. “You no longer have to be in central London.”

His company has also emphasized its position as a thought leader who can help its clients get through these tough times. “We, as advisors, have been at the forefront of that, overseeing various programs with clients,” he says. “We’ve put out a ‘how-to’ guide, offered to carry out COVID impact assessments and return to work assessments. At the outset, we offered pro bono advice for a number of hours.”

“We have five big cities in Germany—they dominate the office market,” says Berendes. “Demand for new leases went down 40%-45%. Interestingly, the vacancy rates did not go up that much; we have long lease contracts of five to 10 years, so the effects will come later. Our clients ask if we can we sublease their offices—especially American companies. One client gave notice their office of 125 people was closed, and they still were contracted for four years. We had to find a subtenant, which at that moment was absolutely impossible.”

Suburban markets will not lose that much, he adds, “because people do not want to sit in public transportation.” What’s more, he continues, “In Europe we do not have a million square feet in one building, so it’s all a little bit easier.”

Olshonsky agrees. “Suburban will always do better because the transportation network is driving,” he says. “That will come back quicker than getting on a subway, bus, train, taxi-cab, or Uber, just because it’s an easier environment to control.”

“We did not change our strategy, but we increased efforts in the most important part of our job: the acquisition of new mandates,” says Schultheiß. “Usually, we meet with our clients at MIPIM in March, at Expo Real in October and in formal in-person meetings over the year. This all was/is not possible, so we had to pick up the phone in order to talk to our clients. As a result, we had much more contact with our clients and were able to secure some nice mandates.”

Just recently, he adds, the company decided to invest in a CRM tool “to be programmed for us, since standard solutions don't meet our expectations. All this resulted in Blackbird group's best year in history!”


Looking to the future, one of the burning questions facing SIORs is, ‘Which, if any of the changes caused by COVID, will remain long after the virus is gone?’ That’s especially true when it comes to office space, where experts wonder if the number of employees who now prefer to work from home, combined with the cost savings to their employers, could lead to a permanent reduction in the demand for office space.

Gabriel Silverstein, SIOR, managing director, SVN/Angelic in Austin, Texas, and SVN Institutional Capital Markets Chair, is not convinced. “Remote work has come up at least two or three times in the last 30 years,” he asserts. “Tech has come a huge way, but the reality is there are some things tech has yet to figure out how to replace and may or may not ever. What people don’t think or talk about is one of the primary benefits of the physical environment; a lot of things happen in unscheduled, spontaneous, hard to plan ways. That human interaction has been an important part of efficiency and effectiveness of office workers.”

The other phenomenon, he continues, is that a lot of people look to that office time because they need to not be home. “The social interaction and variety are a huge part of what office life provides people,” he says. “I think it will come back; I’ve already started to see some companies admit this will not work forever.”

Danks has mixed feelings. “We all had to move to virtual, and this is not going away anytime soon,” he says. “For certain tasks carried out in the workplace, working remotely is much more productive than it would have been. But when it comes down to work that requires collaboration? Get people back together. Young people in their bedrooms are not good for productivity, well-being, collaboration, ideas and innovation.”

“One of the lessons we learned in 2020 is that companies can be run and don't go bankrupt when the majority of the staff is working from home,” says Schultheiß. “For example, a friend of mine is a board member of a big German bank. He would never have believed that a financing institution can send home 80% of its staff and still run ‘more or less normal’—but that is what happened.”

Nevertheless, he continues, “The real estate industry and others depend on social contacts and daily interpersonal cooperation; it is a people's business. I do not want to live in a world where I cannot meet people!”

Video conferencing, he adds, “is nothing but a good compromise—the majority of my clients long for a time when meeting people is possible again.”

He does believe that the demand for office could change in a "new normal," whatever that means. “This demand will ask for more space per employee in order to meet distancing rules,” he predicts.

“So many people have gone home to work and what we hear from public companies, mainly, is that ‘We’re still productive,’” says Fluhr. “That being said, now that the vaccine is here and being distributed, I think we will see a vast and quick stop of bleeding, of companies saying they’re shedding back footage. Casual collisions can’t happen over Zoom, because they’re not scheduled.” Those “collisions,” he notes, can include brokers, property managers, maintenance engineers, legal counsel, or the marketing department. “How can I be successful in taking it to the next level if I’m not engaged with those people on a daily basis and sparking conversations?” he challenges.

Fluhr does draw a distinction between downtown and suburban office space. “Right now, in our marketplace—in downtown especially—you can’t get people safely in because you have vertical workforces - elevator banks and common lobbies,” he explains. “They’ll be longer to recover than suburban office markets, where low-rise buildings have one stairwell up for traffic and one down, and common elevators. They could be in full-on recovery mode by mid-year.”

The overall office vacancy rate in Louisville, he notes, is 14%, with the CBD at about 19%, the suburbs 10%. “If we fast-forward six months, I project the CBD at 23%-25%, suburban relatively flat, maybe 12% max, but I could see a lot of downtown users flee and positive absorption in the suburbs,” he says, adding that these numbers “are probably fairly consistent with the U.S. as a whole.”

But he asserts, “This is not the end of office space.” Companies, he says, already understand they need to have some workforce inside of office buildings. “Will this change mean we’ll have more hybrid structures? No question, but that does not mean 80% of office workers will work at home,” he asserts. The bottom line, he insists, is that not even 10% of the office market will go away.

“Companies may afford to let employees work one day a week from home and share a desk, but both employees will need to be in the office the majority of the work week,” Fluhr explains. “Those who have shed square footage I fully expect in two years to come to say ‘We over-reacted, we need a satellite office.’”

Olshonsky agrees. “I hate it when people say employees will never go back to the office again—yeah, they will,” he says. “It will just take longer. On the good side, we came into COVID not having the huge oversupply of office like we’ve had in past cycles.”

Berendes sees a mix of trends in Europe, depending on the country. “After COVID, I can understand big companies trying to get rid of costs,” he says, but points to the fact that while German offices allow for about 23 square meters per person, and personal space of about 13-16 square meters, “There is no comparison with London or Paris.” In fact, he observes, having worked in London, that “In London you sit in a rabbit hatch, with files lying on the floor and no natural light. It takes more than 1.5-2 hours to commute.” Overall, he predicts, “we’ll have another year like this.”

Danks does not disagree with Berendes about the challenges to downtown London office space going forward. “In my view, it’s never going to be ‘normal’ again; the world is changed forever as a result of COVID. Why in the future would I get in a tube train with my nose pushed up against the back of the head of the person in front of me? I don’t need that in my life anymore.” What he has seen, he says, is an acceleration of choice in doing work remotely. “Our organization was paranoid about people not being in the office, but now there’s recognition we do not all need to be downtown. That will never change back,” he predicts.

Danks says he has seen what he believes to be “the future” in a “Business Epicenter” in Sweden. “They have some startups, some major car companies; a digital team is working on innovative collaborative space,” he shares. “The guy showing us around already had chips embedded in his hand; the lights came on, the doors opened. That’s now; you don’t have to touch things.

“Tomorrow,” he continues, “is here; is now. What would have taken years to happen is here, with us, and we will have to adapt to it.”

Sponsored By SIOR Foundation
This article was sponsored by the SIOR Foundation - Promoting and sponsoring initiatives that educate, enhance, and expand the commercial real estate community. 
The SIOR Foundation is a 501(c)(3) not-forprofit organization. All contributions are tax deductible to the extent of the law.


Hans-Ulrich Berendes, SIOR

Paul Danks, SIOR

Tony Fluhr, SIOR

Jay Olshonsky, SIOR

Tobias Schultheiss, SIOR

Gabriel Silverstein, SIOR


Media Contact
Alexis Fermanis SIOR Director of Communications
Steve Lewis
Steve Lewis
Wordman Inc.

Steve Lewis is a freelance writer and president of Wordman, Inc. He can be contacted at wordmansteve@gmail.com.