Back in the 1970’s, the office of the future was a system of perimeter private offices with a bunch of part-height sheet rock cubicles capped in wood. Here we are, fifty years later, and the only real changes in our office design are the furniture systems.

Over the decades we have seen cubicles evolve from and a 6 foot high monstrosity where the entire office would resemble a rat maze, to efficient systems of different sizes, shapes and materials. The modern cubicle in 2023 is an efficient storage unit of various dimensions, made of an infinite variety of materials for every budget. One of the best features is that we finally figured out that the best height for the cubicle is around 42 inches, so that the occupant can have privacy while seated and can see the natural light when standing up.

Over the years, these cubicles have gone through periods where they were encouraged and times when they were mocked by the cartoonist Dilbert. The strangest phase was the benching craze of the early 2000’s, as a way of squeezing folks around the table to mimic the Starbucks phenomenon, where everyone was like a College student with zero modesty.

Well, along came Covid, and now the safe social distancing has put a damper on all of the plans for a densely packed office design. For three years now, all we have been talking about is the return to the office. When will it happen? How can business owners encourage folks to come back? How has the hybrid work schedule changed things? So what is happening now? Is the office dead?

You may be surprised to learn that the office is far from dead. Here in the Garden State, while the large space users may be starting to panic, Class B office space in many markets is tighter than it has been in years. How is that possible you may ask?

The majority of office buildings in New Jersey were constructed in the 1970s, 1980s and some in the 1990s. The good news is that the majority of the smart Landlords have over the years managed to pay down most or all of their mortgages, so that the carrying costs of these properties for the majority of Landlords is low. While large tenants in Class A office properties have been downsizing, the flight to Class B properties has been strong. While we do note that the cost of renovating office space has reached new heights, the stability of longer term leasing indicates that Class B office Landlords will be able to weather the storm, and that storm is coming.

As interest rates have risen faster than at any time in history, the carrying costs of mortgages are starting to create some pressure on the bottom line. For those properties that are still highly leveraged, the strain on cash flow is becoming critical. Banks have been reluctant to foreclose on delinquent Landlords, even accepting interest only payments for the time being, but sooner or later they may have no choice if and when our regulators wake up.

So, what are business owners to do in a climate like this? We clearly are starting to see the delineations of winners and losers based upon a variety of factors. Many vacant single user properties, if their towns will permit, are repurposing the properties to warehouse where demand is strong.

At a time like this, cash is king. Strong Landlords will succeed while weak ones will languish. Tenants need to know the financial stability of the Landlord and his ability to perform going forward. This is where your tenant advisor can help you as they have their ears to the ground.

To those of you who need help or may have questions about the future, why not give us a call to find out why, at Dickstein Real Estate Services, “OUR DIFFERENCE IS YOUR ADVANTAGE®”

Regards,

Lawrence Dickstein