How Office Investors Are Preparing for 2020

Investors across asset classes are preparing for an economic slowdown in 2020, if not a full recession, and most are strategizing to hedge against a potential downturn. For office investors, tenant diversity is a key way to mitigate risk in the coming year. Olive Hill Group, for example, is focusing on curating the right tenant mix now to prepare for slowing economic growth and how it could impact industries differently.

“We see it more as a slowdown than a recession. We are making a concerted effort to curate our tenant base with a mix of flex and traditional office space to meet the demand for a wide variety of users,” Tim Lee, principal at Olive Hill Group, tells GlobeSt.com. “For example, in addition to the co working space available at our building at 520 Broadway in Santa Monica, we just signed Goodwin Proctor, a law firm which services tech and media clients, to a lease for an entire floor.”

Olive Hill Group is also shifting to a long-term hold strategy and reanalyzing leasing and development strategies. “We are incorporating strategies in development, leasing, and asset management that ensure sustainability,” says Lee. “This includes investing in Capex to ensure we have the best product to compete for tenants in good times or bad. We are also taking a longer-term approach in our investment strategy and not trying to time the market.”

Lee expects Los Angeles—the firm’s primary investment market—to withstand a recession. Lee is even bullish on the potentially weaker areas in the office market. “It must be noted here that while there are fears that many large Silicon Valley tech companies may reduce or close regional offices in the event of a slowdown, Los Angeles is not the typical secondary location for these companies,” he says. “Therefore, we believe they are likely to maintain their strong presence here even if the economy slows down.”

The tech market is actually one of the biggest drivers of growth, and Lee doesn’t expect that to change in 2020. “Many of the tech companies are here to tap into the studio and content creation infrastructure that is already here and doesn’t exist in other locations,” says Lee. “That will never change as Los Angeles will always be the entertainment capital of the world.  The strongest office submarkets will continue to be Silicon Beach, Hollywood and Burbank. In fact, an economic slow down could actually boost demand for content as people entertain more at home and tighten their belts on other entertainment expenses.”