With overall occupancy down almost 2% last year, Birmingham’s office market fared much better than expected.
That’s according to the latest office market survey by Graham & Co. with input from a handful of other real estate brokerages in town.
Despite the pandemic, rental rates actually rose in every submarket at an overall rate of 0.3%, and landlords reported 100% rent payments, said Dan Lovell, director in Graham & Co.’s office group. Part of that is due to construction costs, but companies are waiting for the dust to settle.
“We’re really still early to figure out the effects of Covid and work from home,” Lovell said.
Lochrane Smith, director of leasing and business development at Sloss Real Estate, said the firm saw strong leasing performance last year with no lag in activity, especially with tech companies looking for unique spaces.
“A lot of tenants valued maximizing space to safely spread out their employees, but they also valued having the opportunity to have a courtyard area and other spaces to work,” Smith said. “If a company can provide an office where their employees want to be then they’ll, more often than not, elect to come to the office.”
Much of that has to do with amenities like restaurants in addition to collaborative space such as conference rooms.
“The function of an office is to bring the team together to collaborate on big projects, and when the team is separate and working from home, it’s less effective than when everyone is together, meeting and on the same page,” Smith said.
Companies can take advantage of the low interest rates and lock in long-term leases or buy real estate, Lovell said. Nevertheless, coronavirus serves as an inflection point with businesses developing a work-from-home strategy. It is premature to put a number on it, but fear of work from home spelling the doom of the office is overblown.
“We’ve had office buildings for a long time in this country before Covid, and we just weren’t that wrong,” Lovell said. “Office buildings aren’t going away.”
A bigger challenge is job creation, but Birmingham has a shot at attracting companies exiting larger states if there is a local connection and efforts to reel them in.
“Somebody’s going to get them, because they are leaving,” Lovell said. “I’d take the base hits. If we get some that have 50 jobs, that would be great.”