There’s a bright spot in the Covid-19 pandemic for commercial real estate and office space.
Companies looking for new sites for their offices are distinguishing between dense, transit-dependent cities and up-and-coming places such as the Tampa-St. Pete area, said Mack Feldman, vice president, Feldman Equities, one of the larger property owners in St. Petersburg, with Class A office buildings in downtown St. Petersburg, Carillon and downtown Tampa.
“The great irony, at least for office space, is that one of our historical weaknesses, a lack of mass transit, can actually be a benefit, at least over the next six months to a year,” Feldman said.
“Companies in New York and other transit-dependent markets are having trouble getting people into the office. There’s uncertainty around subways and bus systems. Here, we all drive into work. Our buildings have parking on-site to support that. We’re not as dense as a downtown like New York, where you have to brush shoulders with people.
“If you are a national company and went to set up a second office, where you can do that with a great quality of life, relatively low cost for employees and all the amenities of a downtown, then Tampa and St. Pete are going to be the beneficiaries of that.”
Feldman Equities just completed a $22 million recapitalization of First Central Tower at 360 Central Ave. The recapitalization had been planned for a year, but didn’t go live until July, in the midst of the pandemic. The building is 95 percent leased to high-credit tenants. Still, Feldman said he had to spend more time on the phone with investors than in the past, explaining the future of office space.
“It’s about educating people that the doom and gloom is overstated. We are still signing leases. Tenants are still making commitments, and in any case it’s a lot less volatile than the stock market,” he said.
The pandemic has not slowed leasing at Feldman Equities. The company has signed 40,000 square feet of leases since April and has thousands more square feet of leases out for signature now that it expects to get done.
About 10 to 20 percent of the tenants have asked for specific considerations because of Covid-19, such as reconfiguration of the space to allow for social distancing, or improved air filtration in their units. Feldman Equities will make the changes, usually as part of lease renewals and extensions.
Most tenants are looking longer term, Feldman said.
“Office space is a long-term investment. These are typically seven-to-10 year leases. Even for some of our smaller tenants, they are five to seven or eight year leases. No one really thinks Covid is going to be the same in a year or even two years,” he said. “So we’re hearing from our tenants that there is some short term disruption and we might rethink some of our space needs, but we can’t make a long-term decision on office space based on what is a short-term disruption.”
Tenants are concerned about safety in common areas, such as elevators and lobbies. There, Feldman Equities is being very proactive with high-tech solutions such as HVAC systems that recirculate air, as well as extensive and frequent cleaning.
While it’s still too early to settle on a “new normal” for commercial office buildings, Feldman believes the future is bright.
“Everyone has anxiety around a second wave or a third wave. When is a vaccine going to come out is a key question on everyone’s mind. I think once the vaccine comes out and there’s more clarity around its distribution, we’ll have a clearer sense,” he said.
“At the end of the day, we do expect some small reduction in the number of employees that will be in these spaces, even into the medium term as some people find they can work from home. But over time, the social capital and relationships with coworkers will start to erode if half the company is at home and half the company is in the office, so we expect over the long term it will revert to the office.”