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The triumphant return of the office: The reinvention of workspaces to stay busy
December 6, 2023More inquiries for rent or purchase, less vacancy and growth towards new areas are some of the good symptoms that the office market is sustaining its recovery
By Candelaria Reinoso Taccone
Although the office market in Argentina experienced a challenging third quarter in the midst of an election year and with a series of uncertain economic indicators, the market appears to be recovering. “It catches our attention that an area so hard hit by remote work is showing signs of recovery,” comments Diego Cazes, general manager of LJRamos Brokers Inmobiliarios and adds: “We are noticing that companies are contacting us to inquire about the availability of offices and even move forward with operations that we did not even consider before.”
The expert in the office market points out that this paradigm shift began to take shape immediately after Javier Milei won the elections in the runoff election. Since then, he assures that he has not stopped receiving inquiries and requests from companies seeking to expand their office square meters with the aim of hiring more staff. “I'm not sure, but until five years ago, we had not experienced this situation with several companies,” observes Cazes.
Although it is a very early reaction, some reports from the last quarter align with this expectation. For example, according to the Class A Office report prepared by JL Ramos, the return of surface area in the third quarter compared to the second quarter, which had been 27,300 m², improved by 22,800 m².
Globally, many companies are moving towards returning to offices as part of a general trend.
Cushman & Wakefield's office report for the same period also coincides with the recovery process, because although there was little movement in the premium office segment, the data indicates that the recent pre-election situation significantly influenced the market.
In this context, the average vacancy rate experienced an increase of 1.4 percentage points, closing at 18.5%, according to the latest report from Newmark Argentina. This increase is attributed to the incorporation of two new buildings: one of them is Distrito Quartier , which added 32,400 m² of premium surface to the Retiro area, while the other was a tower of the Lúmina San Isidro complex, located on the Panamericana corridor.
The entry of new buildings, combined with the release of certain square meters of offices in other sectors, impacted the average rental price requested for the available surface.
International panorama
All of these trends reinforce the idea that there is a return to the offices. “At a global level, many companies are moving towards this return as a general thing ,” says Julián Peña, broker at JL Ramos. He points out that in the United States there has been a push to maintain stability in the corporate real estate market and ensure rental income, and “in Latin America what happens in the US is always replicated, although with a certain delay,” says Peña.Following this line, the broker highlights that the North American Government is making efforts to encourage companies to return to presence and occupy empty spaces. This strategy seeks to revitalize buildings and help investment funds regain their financial health. “In the US, companies that invested in real estate in the 1980s and 1990s rely heavily on rental income and need companies to return to offices to secure this income,” he explains.
In the North Zone, the office vacancy rate is currently less than 10%, while in other parts of the city and the province it reaches 15%.
The return to offices is being largely pushed in New York , as they fear a possible bubble similar to the mortgage crisis in 2009 if they fail, although more oriented towards the corporate market. In contrast, in Argentina, the investor market is smaller and is dominated mostly by medium-sized companies and SMEs, which has avoided the formation of bubbles in the office sector due to the scarcity of available surfaces in relation to countries. larger ones like Brazil and Mexico.
On the other hand, according to Cushman & Wakefield, in South America companies continue to promote presence by implementing a hybrid work model, which has generated a downward trend in the availability of available space. Those companies that, after the pandemic crisis, chose to reinvent the use of work spaces are those that are currently looking for healthier environments adapted to their new needs. This evolution, in the long term, will have a positive impact by putting pressure on the vacancy rate, bringing it down.
The worst is over
Companies are choosing to reduce their office space in exchange for better quality buildings with extra amenities
“The current office market has already gone through the worst part, although it is still below historical price levels, which makes it an attractive opportunity,” says Peña. However, he also warns that the future direction of this decline will depend on several factors, especially the next decisions made by the president-elect.
Peña also sees opportunities in some areas of Buenos Aires and anticipates that companies will bet on expanding submarkets. In particular, he highlights that in the northern area, along Avenida del Libertador , the office vacancy rate is currently less than 10%, while in other parts of the city and the province it reaches 15%. This is due to the lack of construction of new high-quality spaces in these areas.
Due to the saturation of demand in Zona Norte, opportunities emerge in other submarkets such as downtown and Retiro.
“The searches we had in recent months focused on the northern area, generally offices of around 100 m² near the River Plate stadium,” mentions the broker. But there are few high-quality properties available as investors who saw the opportunity have settled there, leaving few opportunities for new buyers.
More quality and less quantity
Given that the office market was experiencing sustained growth until PASO, it can currently be characterized as neutral.
“In the face of devaluations and hybrid work, companies are strategically evaluating the use of the office and releasing large-area floors to occupy fewer square meters , but of higher quality,” adds Carolina Wundes, market research coordinator at Cushman & Wakefield.
From Newmark Argentina, its CEO and director, Domingo Speranza, agrees by stating that “we have observed that the population has returned to the offices, and we have noticed an increase in the search for smaller spaces instead of the searches for large spaces that we used to. see,” he comments.
It clarifies that occupancy levels in Class A buildings do not generate significant concerns, but they do in those buildings of lower quality, which are experiencing difficulties and it is a pattern that is replicated around the world. “A fly to quality trend has emerged, in which organizations occupying inefficient or outdated offices realized the need for change to attract and retain talent. In this sense, all the new buildings that are inaugurated in Buenos Aires show a high occupancy rate and reflect this search for improvements in the quality of work spaces,” says Speranza.
The marketing strategy focuses on offering amenities such as conference rooms and sky bars.
Due to saturation in the northern area, opportunities emerge in the downtown area and Retiro, where there is more availability. “Corporate office owners have already recovered their initial investment, allowing them to adjust rental prices downward, even below historical values.” The marketing strategy focuses on offering amenities such as conference rooms and sky bars , which attracts companies,” says Peña.
Challenges and opportunities
The current stagnation in the office market has significant repercussions on the strategic planning of developers.
Given that the office market was experiencing sustained growth until PASO, we can currently speak of a plateau. “After the devaluation caused by the primary elections, there was no drop in prices, but rather they have remained stable, which could be described more as a necessary adjustment than as an abrupt drop,” says Speranza.
Looking to the future, premium segment surfaces have already begun to be delivered (33,300 m² completed) with 10% occupancy. The balance under construction amounts to 296,638 m², according to Cushman & Wakefield.
Another possibility is that multinational companies that cannot maintain excess capital seek investment opportunities in corporate real estate.
The current stagnation in the office market has repercussions on the strategic planning of developers, they say from Newmark. Although they continue with projects underway, there is a reluctance to undertake new developments or there are adjustments in the projected surface area for offices.
Fernando Novoa Uriarte, partner and director of office transactions at Newmark Argentina, establishes that there is no great demand for additional square meters and considers that the future Government has the challenge of boosting the demand for office space through a “genuine growth in activity.” "economic", promoting the potential of companies already established and incorporating new ones that will land in the future, especially in the technological, energy and agro-industrial fields. “The question about the next President has already been resolved, attention is now focused on the measures he will take,” he adds.
In this sense, it emphasizes the speed with which the local market can respond to changes in demand, with a faster recovery process than in larger markets, such as Mexico and Brazil. Peña, for his part, hopes that, as the political and economic situation stabilizes, the sector will recover, in areas such as Retiro, Microcentro and Tribunales , where there is availability of Class B buildings with amenities.
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