October 11, 2023 3:41 pm

You all know the axiom about real estate, that they aren’t making any more of it!  Well, that may be true, but have you noticed that the world of real estate that we all live in is shrinking?  How can that be true?

Most of us in 2023 are keenly aware of the increasing value of our own homes.  If you simply Google your address, you will note that residential properties in many markets have increased in value by nearly 20 percent in the last year or so.  Just two years ago, most homeowners were able to find mortgages in the 2 percent range. By contrast, new homebuyers are faced with rates near 8 percent and rising.  Since few folks are willing to give up their 2 percent mortgage for a new 8 percent mortgage, we see very few residential homes on the market for sale.  When one does come on the market, there are scores of potential buyers all competing for and driving the price skyward. 

The market for commercial properties is also undergoing stress.  Readers of this newsletter will note how we have been describing the rise of warehouse rentals to historic levels.  Here in the Garden State one third of the population of the United States lives within 600 miles of the NY/NJ metropolitan area, so we are ground zero for online merchants trying to store products within a 1-2 days radius. We have noted that rents went flying upward to the $14-$18 net range in 2023.  Prices may have peaked for the moment, but we still see an enormous amount of interest in anything that comes on the market.

So, what about office space?  Office properties are a bit more nuanced, but here there is also a shrinking supply.  REALLY?  All you heard about in the last year in the media is how office properties are in the toilet, and that their values are plummeting due to the lasting effects of hybrid work schedules and work from home.  For some vacant single-user office buildings this may be the fact, but for the great majority of office properties, the rumors of their death may be greatly exaggerated.

As the pandemic begins to recede from our memories, we do see that many developers are indeed experiencing quite a lasting hangover from hybrid work schedules and work from home issues.  But they have not been idle.  They have quietly adapted to the new world they see and have been rising to the challenge.  We see quite a number of developers that are repurposing their properties from office to warehouse, residential and other specialty uses.  As the universe of office properties starts to shrink, we see a noticeable tightening of the available office space in some markets driving rentals to new heights.  We see a strong B market for the surviving small office users and even a healthy almost robust market for some of the larger office tenants in Class A properties. 

Complicating the negotiations in new leasing transactions are the rising costs of construction. As the cost of building materials and labor keeps rising, it becomes very difficult for Landlords to amortize the cost of new office buildouts for less than 7 or even 10 years.  This has led to a surprising phenomenon of unexpected stability as the surviving tenants have been stepping up to sign long term leases when new construction buildout is required.

We are very actively working within the smaller universe of office tenants that want to keep their office space relevant for their employees.  Post Covid there are a numbers of steps that smart employers need to consider to keep their competitive market position.  If you are one of the survivors that needs to reevaluate your space needs in the middle of this complex world, why not give us a call and find out why, at Dickstein Real Estate Services, OUR DIFFERENCE IS YOUR ADVANTAGE®.


Lawrence Dickstein

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