The Delta variant has thrown a wrench into the plans of many companies hoping to return to in-person work in the fall, but according to Yardi Matrix, commercial office transaction activity still finds itself persisting on the upswing.
A number of high-profile properties have changed hands in July, including 725 Ponce, a mixed-use office tower of more than 370,000 square feet overlooking Atlanta’s Beltline trail. Cousins Properties, Inc., purchased the building, which is fully leased to several premier tenants including Chick-fil-A, BlackRock and McKinsey & Co., on July 28 for $300.7 million. That equates to an average of $807 per square foot, the highest average price per square foot ever recorded by Yardi in the Atlanta market.
Earlier in the month, LinkedIn went from renter to owner at its Sunnyvale headquarters for $323 million, or about $1,122 per square foot. The social network took over leasing the buildings in 2016 as part of a land swap with fellow tech titan Google, affirming its commitment to the space on July 2 by fully acquiring the property from entities associated with Deutsche Bank. Interestingly, LinkedIn announced just weeks after the purchase that its employees will be able to permanently work fully remotely, suggesting that the company still believes in the importance of the physical office even if employees can work from home. According to Yardi, this viewpoint represents a mounting consensus among several large corporations.
Many employees of such firms, in the meantime, will continue to work remotely, with a growing list of major employers pushing out their return-to-office dates as the Delta variant continues to spread. Google, BlackRock, Wells Fargo and Humana have moved their in-office dates from September to October, while Amazon is now planning to return workers to the office after the new year. Lyft has moved its target date all the way back out to February, while Dell has delayed its return date indefinitely.
Several that are sticking to in-office returns sooner rather than later are now mandating vaccines, especially now that the CDC has approved Pfizer’s vaccine past emergency status. Such companies include Facebook, United Airlines, WalMart, Tyson Foods, Alphabet and Northwestern Mutual, Yardi reported.
Despite the ongoing uncertainty, Yardi’s data suggests that landlords are holding firm rather than lowering rates to attract tenants. Average full-service equivalent listing rates have stayed essentially flat since the start of the pandemic, growing just 1.0% from February 2020 to this July. Nationally, the average full-service listing rate was $38.62 per foot, up 2 cents from June.
On a positive note, the stark jumps in vacancy rates triggered by the pandemic appear to be behind us, though vacancies remain elevated. The national vacancy rate vaulted from 12.8% in February 2020 to 15.6% in March 2021, but this year so far has seen just modest fluctuations on a monthly basis. Over the past four months, the national vacancy rate has been virtually unchanged, ending July at 15.5%— up 190 basis points from the same month last year, but down 10 basis points from the preceding June.