Take Five: Rumors of the office’s demise are greatly exaggerated
Colliers International | Wisconsin recently named Chris Richards as its new managing director and market leader of its Madison office. Richards, a Madison native, has worked in Madison commercial real estate for 15 years, including stints at Oakbrook Corp. and Hovde Properties. He will be responsible for Colliers’ growth in the Madison and southwest Wisconsin commercial real estate markets.
Colliers International, a real estate professional services and investment management company, manages approximately 12 million square feet statewide and close to 1 million square feet in the Greater Madison market. In this market, Richards believes industrial and multifamily construction will flourish in the short run, but he adds that most people will prefer to return to the office at some point.
First, a question about the market outlook for the Madison and southwest Wisconsin commercial real estate markets. Upon appointment to your new post, you stated that Madison and the surrounding area continue to present tremendous potential for growth. Where will that growth occur, either geographically or with building type?
“There are plenty of built-in opportunities with the number of projects here in Madison that have already been built. Moving into the future, certainly COVID will slow down retail development and office development, but there will be a fair amount — and I anticipate a fair amount — of multifamily and industrial construction — industrial construction at a bit higher pace than it has been in the last three to four years. With multifamily, maybe some of the 200-plus unit projects will slow a bit, but there will still be a fair amount of multifamily construction here in the near and distant future.”
Will COVID negatively affect the community’s interest in building more affordable housing?
“I don’t think so. Admittedly, the multifamily housing market is not something we follow a ton from the aspect of leasing, but my understanding from everything we read about the city of Madison and surrounding areas is that affordable housing might be the most needed product type of any kind of construction. So, I don’t anticipate that slowing down. The issue tends to become whether it is financially viable for developers to do affordable housing units. Is funding available from municipalities to allow them to move forward with those projects?”
Is it too early to assess the impacts of COVID-19 — specifically, more people becoming comfortable working remotely from home — on new commercial construction? Most people surveyed don’t want to completely give up office work, preferring a hybrid approach, but some do. What do you think?
“Certainly, there are more questions than answers in that regard, but I believe it’s probably a bit too early. But the idea of people wanting to continue to work from home and companies saying they will get rid of their office space is a bit farfetched. From the people who I’ve talked to and the owners and frankly a lot of people who are working from home, we’ll probably move forward with more of a hybrid work model. But I don’t think the days of never coming into the office are going to be the way it actually is.
“Employers will be much more flexible, allowing their employees to work from home when needed or a couple days a week. But the idea, prior to COVID, of collaboration and culture and retaining and recruiting employees, that stuff is still too important to dismiss, and that’s why office space moving forward will be OK.”
What will we see that’s different — perhaps permanently different — in the office environment itself?
“What we’ll probably end up seeing is much more spaced out collaboration space. So, maybe the days of walking into a young tech company’s office and seeing these long tables with chairs set up where everybody can plug in and sit right next to each other are over. We might revert back to the old-school cubicles or spaced out areas to work in. We might see more private offices being built whereas in last five to 10 years, it’s been all about opening up space, and we’ll probably go back to more private spaces moving forward.”
What other industry challenges are on the long-term horizon?
“With retail, we’ve only seen the tip of the iceberg in terms of how COVID is impacting the industry. There is going to be, certainly after this winter and how things progress with restaurants, a very difficult retail environment moving forward for a significant period of time. Hospitality will continue to struggle until people are comfortable traveling again. Industrial space will continue to be a hot item, especially in Madison, where vacancy rates are extremely low and really have been for the past 15 years. Now, it’s amazingly low in terms of vacancy rates. I see a lot of opportunity for industrial here moving forward. My biggest concern is retail and hospitality, which most people are concerned about.”
Before I ask about the positives that are in place, I have a question about the short term. What key market drivers should people keep an eye on in the coming months?
“We will see some more sublease space available in the market. Larger users are deciding that they are not going to come back to work in full force, so they might be willing to give back a chunk of their space to another user. You might see pockets of that going up. This winter will be very impactful for restaurants. Some were able to weather the storm, for lack of a better phrase, this summer with outdoor seating, but we’re going to see how stretched that industry will be throughout these winter months, and hopefully these business owners will be able to continue to operate and move forward.”
What are the positives in place that improve your outlook?
“Well, the positives in place are really the things Madison has become known for in the real estate world. Historically, we have been insulated from the big swings. Madison has, at least in the 15 years I’ve been here in business when we’ve had issues like the Great Recession and COVID, we’ve weathered the storm well as a real estate area. I would think we’d see much of the same moving forward because of the Capitol and the university and a lot of the strong companies like Epic and the spinoffs of Epic that have done so well. Madison will be hit without question; however, we won’t be as affected as other areas and we’ll bounce back quicker as well.”
“The reality of the world right now is that there are a lot more questions than answers. It’s better for Madison than what we read about on the national level.”
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