Shifting Office Trends in a Post-Pandemic World

By Gary Tasman Earlier this month, the World Health Organization declared an official end to the coronavirus public health emergency. Although most traces of the pandemic have faded, its societal impact still lingers. COVID-19 has irreversibly changed the way we shop, communicate, visit the doctor, and even enjoy our meals. We are spending more time at home and online than ever before—and this trend is certainly also reflected in our workspaces. Three years ago, as the majority of offices across the country remained shuttered because of the coronavirus pandemic, analysts and property owners began pondering the long-term fate of the commercial office. Prior to the pandemic, fewer than 6% of the American workforce primarily worked from home, according to the U.S. Census Bureau.  In May 2020, two months into the coronavirus shutdowns, the U.S Bureau of Labor Statistics found that 35% of employees were completing their job duties from home, proving that remote work models could indeed be productive, while also providing a glimpse into the future of the changing American office. At the time, Cushman & Wakefield |Commercial Property Southwest Florida (CPSWFL) predicted how workspaces would change, not only as the product of ongoing pandemic-related caution, but also as a result of employees’ embrace of the work-from-home model. In a July 2020  News-Press article, CPSWFL forecasted that the change in work trends would ultimately lead businesses to utilize less private space for individual offices and instead dedicate more room to public and social spaces. The Importance of Collaborative Workspace Why are open, collaborative workspaces important in a time when many of us complete our job responsibilities away from the office? There are two primary reasons: social capital and company culture. While technology affords us many opportunities to remain connected, our chat rooms, virtual meetings, and cloud-based collaboration deprives us of cultural connections. A 2022 report by Microsoft noted that our social connections are suffering because of hybrid and remote work. Employees who feel connected with their teammates report higher productivity, lower stress, stronger wellbeing and job fulfillment, and have less interest in pursuing jobs with other employers. While it’s certainly possible for remote and hybrid team members to feel connected with their coworkers, it is an uphill battle. The same report notes that the majority of remote and hybrid employees have fewer work friendships, and feel more lonely than they did as in-office workers. Maintaining a cultural connection is also challenging in remote and hybrid work environments. Harvard Business Review notes that “…just 25% of remote and hybrid knowledge workers feel connected to their company’s culture.” However, that same article notes that mandating team members to return to work has an even more negative impact on cultural connectedness. One way to promote connectedness to both teammates and company culture is providing collaborative workspace where employees aren’t forced to meet, but instead want to meet. Social space should provide enough room for your whole team, and ideally is used not only for meetings but for special events and activities that promote cultural connection. An increase in public and social space also offers another benefit to employers: a reduced need for total office area, and decreased facility costs. But there may be a hitch in that theory. Hybrid Work and Office Productivity From a business perspective, remote and hybrid work can afford businesses the ability to lease less space, offering potential savings. However, many fear that those savings will be offset by a reduction in productivity. Although remote office workers regularly report that they feel more productive without workplace interruptions, supervisors are growing increasingly skeptical. The term “productivity paranoia” is an apt description for this emerging trend. In a Microsoft survey, 87% of employees report that they are productive at work, and productivity signals produced by Microsoft 365 use indicate this is indeed the case.  The number of hours worked are on the rise, as are virtual meetings and other activity metrics. However, hybrid managers say they are struggling to trust their employees because of less visibility into their team members’ day-to-day work. In many ways, providing collaborative workspaces can help solve this dilemma. Employees receive the benefit of increased connectivity and managers can maintain their desired touchpoints with their teams, all while still reducing their organization’s total space needs. Post-Pandemic Office Trends The report Obsolescence Equals Opportunity, produced by Cushman & Wakefield, observes that “the office sector is facing a critical chapter of necessary adaptation, evolution, and recalibration.” As offices work to either relocate or reconfigure to adapt to the needs of a hybrid work model, employers are discovering the need for newer, or higher-quality space that offers more adaptable structure and a stronger in-person experience for employees. This creates a rift between supply and demand. Entering the pandemic, Southwest Florida had balance in the commercial office market. With few employers in the region offering remote or hybrid work opportunities, the office real estate sector was right-sized.  Coming out of the pandemic, however, the balance has skewed.  While business in our region is booming thanks to a population explosion, the need for space is shrinking because employers now need less space per employee. This trend is evident when looking at leasing data in the Southwest Florida office market.  Vacancy rates in leased office space have climbed by 130 basis points, from 13.6% to 14.9% year over year. This comes despite a 4.7% increase locally in non-farm employment, and a 6.3% jump in professional and business services employment over the same period, according to the Florida Department of Economic Opportunity. Southwest Florida is not alone in this trend. Nationally, the once-common equilibrium between job growth and office demand has disappeared. Cushman & Wakefield data notes that for the first two decades of the 2000s, office demand and employment growth had an 85% correlation. However, since Q2 of 2020, the economy added 1.4 million office workers, while the amount of commercial office space in use has dropped more than 180 million square feet. Could this shift be long term or even

By Gary Tasman If you’ve ever attended a ceremonial groundbreaking for a school, restaurant, corporate headquarters or other new building, you understand the symbolism of that first turn of the dirt. The groundbreaking ceremony signifies the start of that construction project. In most cases, however, months or even years have already been spent preparing the land for future growth, as planners and developers work behind the scenes to make the property “shovel ready.” Attempting to market a property that is not shovel ready can be a significant barrier to making a commercial property sale. In fact, it’s hindered some significant transactions right here in Southwest Florida. But what does it mean to have a shovel ready property, and why is it so important? What Does Shovel Ready Mean? The term shovel ready became popular during the Great Recession, as part of the American Recovery and Reinvestment Act of 2009. The legislation placed funding priority on projects that could begin construction rapidly, in hopes of jumpstarting the economy by providing investment and employment opportunities quickly. The term “shovel ready” became an important buzzword, and an even more important strategy, in commercial real estate. Although there’s no standard definition for shovel readiness, the term typically refers to commercial sites that are entitled/permitted and ready to be developed. All of the front-end planning and due diligence has been completed: Environmental studies and soil analysis have been conducted and approved environmental permits are in hand, infrastructure is in place (or at least in process), and planning and zoning processes have been completed. In other words, the site is compliant with local, state, and federal regulations and prepared for the quick start of construction. A shovel ready site also has a clear title, with no questions as to its ownership to make the transfer of ownership simple. Many states and municipalities support shovel readiness through a site certification program—in fact, more than two-thirds of U.S. states have a site readiness certification, although there are inconsistencies between them and no national standard to follow. While Florida does not have such a program, some public-private partnerships are working to fill the gap. Utility providers Duke Energy and Florida Power & Light both partner with Enterprise Florida on site readiness initiatives. Enterprise Florida also offers site preparedness grants to rural communities looking to expand and attract business. While getting a large property shovel ready can require a significant investment in both capital and time, the benefits to the seller and the buyer both outweigh the disadvantages. Why is it Important for Land to be Shovel Ready? Having a shovel ready site offers differentiation for property owners seeking to market their land for sale, particularly in a hot market like Southwest Florida. While a shovel ready site is not exactly turnkey for a buyer, it will reduce their start-up costs, risk and the time it takes them to get to market.  Businesses and builders looking to ramp up quickly and establish their presence in the market will seek out shovel ready sites in order to hit the ground running. Consider this: In Southwest Florida, it is not out of the ordinary for a commercial project to take up to two years to obtain all of the necessary land use and civil engineering permits. While permitting requirements and other regulations obviously vary from county to county, similar timelines can be expected in many metropolitan areas. For a business seeking to relocate its headquarters quickly, a two-year wait on top of the actual construction timeframe can make even the most desirable location unattractive. In addition to reducing time-to-business, prospective buyers also want to reduce up-front costs and mitigate risk.  Having all of the entitlements completed in a shovel ready site creates less chance of a surprise that will delay construction or require additional financial outlay. When sites are targeted, selected, and prepared for economic development before going to market, they are more attractive opportunities for buyers. Those that attempt to sell a site without first making it shovel ready may struggle, particularly in a competitive commercial real estate market. Case Study: Lee County Port Authority’s Skyplex An excellent example of this can be found in Lee County, with the property designated for Skyplex. Skyplex is a 1,800 -acre property located on the north side of Southwest Florida International Airport property, that includes more than 900 acres targeted primarily for office sites: corporate headquarters, office complexes, and science and technology companies. The remaining land will be targeted for aviation-related uses, open/green space, wetland preservation and storm water management.  The Port Authority-owned Skyplex property is ideally located for commercial development. Situated at one of the nation’s largest airports in terms of land mass, Skyplex is convenient to Interstate 75, Daniels Parkway, Alico Road, and Colonial Boulevard. The site is located within a Foreign Trade Zone, which offers numerous cost-saving benefits. Finally, a large workforce is located within a short distance, as recent development and transportation corridor improvements have shortened the commute for those in Lehigh Acres, Fort Myers, and South Lee County. The first tenant to move into Skyplex was Sky Walk, a Publix-anchored shopping center that opened in 2017 and proved the site’s value to builders. That same year, one of Lee County’s largest employers, Gartner, announced that it would build a new 143,000 square foot campus on a 19-acre Skyplex parcel. Since then, Alta Resources has constructed a $21 million dollar facility at the Port Authority-owned commercial property. Neither Alta nor Gartner were strangers to the area– both already had a large footprint in the Gateway area, so Skyplex was a natural progression for them. The key to continuing this momentum at Skyplex is shovel readiness, according to Don Schrotenboer, real estate consultant and managing partner of Realvizory. “Headquarters wanting to relocate don’t want to wait two to three years that it takes sometimes to get through the entitlement process to reposition a property,” Schrotenboer told us on our most recent episode of the “What’s Developing in Southwest Florida” podcast.

By Gary Tasman Many people are surprised to learn that as commercial property brokers, our role at Cushman & Wakefield | Commercial Property Southwest Florida (CPSWFL) goes far beyond simply buying, selling, and leasing real estate.  While real estate transactions are certainly our core business, we strive to offer added value to our clients.  Our experience and knowledge of our local market and economic drivers, combined with local and global research and analytics, allow us to provide our clients with nuanced insights. This empowers them to make smart decisions, whether they’re seeking to buy or sell an investment property, relocate a business, or develop a previously vacant parcel. This service—essentially consulting and counseling—has allowed us to become one of the architects of our region’s commercial development landscape. We’ve assisted large corporations, small businesses, nonprofits, and government entities as they seek to solve problems, discover hidden opportunities, and adapt to the evolution of our rapidly growing region. While CPSWFL largely assists clients in Lee, Collier, and Charlotte Counties, there is another entity that is looking at the future of our region and offering their insight into the possibilities Southwest Florida holds. That entity is known as the Counselors of Real Estate, and their work will change Southwest Florida as we know it. Who Are the Counselors of Real Estate? The Counselors of Real Estate (CRE) are a collective of problem solvers. This team of international experts offers unbiased advice on complex matters, including large scale property and development issues. Its credentialed members include real estate brokers, developers, economists, futurists, academics, investors, and experts from the financial and legal realms. Together, they are renowned for “applying rigorous, independent, and informed analysis to complex real estate decisions facing their clientele.” The CRE’s clientele is equally as diverse as its membership. They include government agencies, Fortune 500 companies, investment management firms, developers, pension endowments, appraisers, bankers, architectural and engineering firms, real estate investment trusts, and others. One of the Counselors of Real Estate’s largest initiatives is the CRE Consulting Corps.  This public service program aids nonprofits, educational institutions, and government entities with real estate analysis and action plans on a pro bono basis. This team of CRE volunteers recently advised the Town of Paradise, California on how to rebuild after the Camp Fire of 2018, one of the most destructive disasters in state history. More recently, the Consulting Corps advised the Confederated Tribes of Grande Ronde in Oregon on how to redevelop an industrialized parcel that had once been tribal ancestral homelands. CRE Consulting Corps in Southwest Florida Why have the Counselors of Real Estate turned their attention to Southwest Florida?  Because of one of the most ambitious initiatives ever seen in our region. 18 months ago, our friends at the Collaboratory (formerly the Southwest Florida Community Foundation) announced their community initiative to solve all of Southwest Florida’s social problems on an 18-year deadline. Of course, issues like hunger, domestic violence, transportation, homelessness, childhood education, poverty, public safety, addiction, nutrition, and poverty are not unique to Southwest Florida. At first glance, these challenges may all seem like individual issues.  However, Collaboratory CEO Sarah Owen recognizes the interconnectivity between these issues, and understands that our region’s future development sets the stage for how we manage — and hopefully solve — these complex problems. If you’re familiar with systems theory, you understand that Southwest Florida’s social challenges don’t exist in a vacuum. Defined as “[a] theory of interacting processes and the way they influence each other over time to permit the continuity of some larger whole,” systems theory can apply to science, nature, business, and of course, society. Typically, we address these challenges with a siloed approach. There are hundreds of nonprofits and initiatives across Southwest Florida that do important work tackling issues on an individual basis. However, because these matters are interconnected — or as the Collaboratory says, “entangled”— their progress is limited because each of these issues exists in a system that created or nurtured it. Instead of tackling individual problems, the Collaboratory hopes to rebuild the system that has enabled these problems. But, as Owen explained to us on the season finale of our “What’s Developing in Southwest Florida” podcast, “as we begin to reimagine what our region could be, our natural instinct right is just to build it back exactly as it was.”  Her team at the Collaboratory knows that sometimes it takes an unbiased outsider — or a team of them — to help us understand our own challenges. Creating a Thriving, Developing Southwest Florida If you’re a regular reader of our articles, then you understand how development plays a role in our region’s success. As our population continues to surge, our need increases for more utility, transportation, and communication infrastructure. Our airports expand, creating a demand for more jobs in the tourism and service industries. Higher housing demand for our many new residents pushes out low-income buyers, creating an affordable housing crisis. Challenges like these, and many others, will be tackled by the CRE Consulting Corps as they evaluate and advise the Collaboratory and community leaders across Southwest Florida. The Corps is focused on transforming communities through understanding the region’s challenges. The goal of these experts is to create a realistic, feasible, and achievable road map for solving the community’s concerns. In the Fall of 2022, Corps members visited Southwest Florida at the Collaboratory’s request, to analyze our market and listen to stakeholders. At CPSWFL, our Commercial Property Experts had the opportunity to meet with the Corps to share our knowledge of the development landscape in Southwest Florida. Shortly after their visit, Hurricane Ian hit our region, and the Corps visited again with experts in disaster response and recovery. They will continue to return to offer their expertise on not only the Collaboratory’s 18-year plan, but also on how to reimagine our community after the hurricane. Those that fear that outsiders will be dictating our region’s growth need not worry. Community input and feedback is an essential component of

By Gary Tasman The past year has been a remarkable one in Southwest Florida, and the commercial real estate market is no exception to this trend. Record low vacancy rates, combined with a continued population surge in the region, have driven local demand for commercial property to historic levels. In contrast, high interest rates, inflation, and hybrid work conditions have made the commercial property outlook in other parts of the nation much less positive. With 2022 now behind us, our team at Cushman & Wakefield | Commercial Property Southwest Florida (CPSWFL) is taking the opportunity to reflect on some of the landmark transactions we’ve overseen during the last 12 months. While each of these transactions were remarkable in their own right, together they speak to the strength of the commercial real estate market in Southwest Florida. Industrial Development Near RSW Since the start of the pandemic, commercial development near Southwest Florida International Airport has been surging. Alico Road, Daniels Parkway and Ben Hill Griffin Parkway are lined with new warehouses, distribution hubs and fulfillment centers. With our strategic location conveniently placed between Florida’s two largest metropolitan areas, it’s no wonder that developers, online retailers, and distributors have taken notice of Southwest Florida. In 2022, the most significant transaction in this corridor was the sale of 312.5 acres located at 16200 Ben Hill Griffin Parkway. Sold by our team in May for $40 million, the property has frontages on three major roadways, including Interstate 75, Ben Hill Griffin Parkway and Airport Access Road. With nearly all of the property around it already in development, the property was in high demand, receiving multiple bids from all across the country. The land’s previous owner, Youngquist Brothers, made numerous investments in the property to prepare it for sale, including clearing the land and securing entitlement for a master planned development to include industrial, office, medical, and hotel construction. The property is currently in permitting for development of the Gulf Landing Logistics Center, a mixed-use planned development. The sale of this property speaks to the strength of Southwest Florida as a market for industrial development.  At the time of the sale, the industrial vacancy rate in Southwest Florida was a mere 1.0%, a number substantially lower than the 3.1% rate in the rest of the country. While projects like the Gulf Landing Logistics Center will surely make a dent in industrial vacancies, we anticipate that demand will continue to outpace supply in the industrial sector. Mixed-Use Development in Estero An equally notable transaction for our team was the $32 million sale of 45.6 acres at the intersection of Tamiami Trail and Coconut Road in Estero. The previous owner of the land, Lee Health, had initially purchased it as an investment property as it built Lee Health Coconut Point. The hospital system had worked with the Village of Estero to create a plan for a mixed-use development on the property.  Our team was tasked to find a developer that shared the same vision for the land. The buyer, Woodfield Development and ELV Associates, plans to build a world-class mixed use project on the site, with market-rate multi-family housing alongside retail, restaurants, office, and more. We anticipate that the parcel will also house a community center or cultural center. We’ve all heard the cliche that the three most important factors in real estate are location, location, and location, and this property is a prime example. Located on US-41, directly across the street from the bustling Coconut Point shopping center, the land also has significant infrastructure already in place, which will allow the new developer to hit the ground running. Improving Southwest Florida’s Office Stock One of the most symbolic transactions we brokered in 2022 was the sale of 5220 Summerlin Commons Boulevard in Fort Myers. Sold for $10.25 million, the five-story building is particularly important to us because the fifth floor houses our CPSWFL headquarters. While office real estate sales have been slow nationally, the commercial office market in Southwest Florida has been very competitive. At mid-year, our region’s office vacancy rate hovered around 5%, well below the national average of nearly 18%. Again, we can attribute our rapid population growth to this trend. But while office properties may be a hot commodity in our area, Southwest Florida’s existing stock of office space is dated. Years with very little speculative development in our area have led to a shortage of modern space. To many investors, our area’s older office buildings signal a great opportunity to buy antiquated office stock and add value through upgrades. This can include “smart building” improvements, which not only make an office more efficient but also drive higher rents in the long run. Satisfying the Need for Multi-Family Housing Our final two landmark transactions in 2022 will provide some much-needed multi-family housing in two areas with a desperate need for apartments: Cape Coral and Naples. Located near the intersection of Chiquita Boulevard and Pine Island Road in Cape Coral, the property that will house The Hadley sold for $14.65 million in June. The 444-unit multifamily project was fully approved and ready to go vertical at the time of the sale. It is one of several large multifamily developments currently under construction in the Cape, an area that has struggled to keep up with its rapid growth and need for rental properties. More Class A apartment space is also coming to Naples, where we brokered the sale of three conjoined parcels totalling nearly 19 acres at 8552 Collier Boulevard, just west of the Florida Sports Park. The parcels sold in August for $8.995 million, and will be developed into Fiori, a 303-unit multifamily complex. Both of these multi-family properties are the vision of The Latigo Group LLC, a Los Angeles-based real estate development and investment company focused on high quality multi-family properties in strategic markets. The complexes, which are expected to open in 2024, will feature resort-style amenities like fitness and wellness features, resort-style pools, coworking spaces, and more. Both will offer one,