CHICAGO—Perhaps the most hopeful recent change to the US office market has been the rise of high-tech firms and the impact they have had on the nation's CBDs. The subject was just one of many tackled at the NAI Global Market Outlook in Chicago on Wednesday. During the morning session, Jay Olshonsky, president of NAI Global, asked panelists Peter Linneman, chief economist of NAI Global, and Sam Zell, chairman of Equity Group Investments whether or not tech firms could produce enough demand to sustain the office market over the long term.
“Tech has been the single biggest tenant in the recovery,” replied Zell. However, he remains reluctant to give a clear-cut endorsement of the sector. “The tech business today is thriving on the availability of capital” and until its companies have solid business plans and products, instead of ideas, it would be naïve to consider it a true asset class.
Zell estimated that WeWork, a New York-based global operator of collaborative workspaces, has taken several million square feet of space in the US, much of it used by tech start-ups. “If there is a tech bust, how fast does that space empty out?”
“I'm not in any way picking on WeWork specifically,” he added. Still, Zell feels that there is a lot of office space occupied by tech start-ups that are losing money every month.
Linneman also felt that financial firms were “dead as an engine of growth” and could no longer be considered a savior of the office sector. Zell agreed but added that they could still garner a lot of notice with the occasional big trophy lease.
Zell has won renown in the real estate world for the ability to buy and sell properties at the right time, and Olshonsky then asked him whether it was the right time to be a buyer or a seller.
He replied that there are always unique opportunities and it's important to be ready to buy when that happens. But these days, it takes one of those unique opportunities “for me to be a buyer. I want to sell everything I have that is not a headquarters. This is not the time to own marginal stuff.”
And the beauty of this attitude, he adds, is that there are hordes of buyers with lots of capital. His Equity Commonwealth REIT, for example, has announced that as part of a repositioning program it will divest up to $3 billion of non-core assets by the end of 2017. And earlier this month, the trust said that it had completed the sale of two portfolios for a combined sales price of $793 million. The portfolios totaled 51 properties and 8.3 million square feet.
Zell's philosophy? “When the ducks are quacking, feed 'em.”
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