As executive managing director with the Detroit office of Savills, Greg Bockart has worked through the toughest days of the COVID-19 pandemic, back when no one knew when employees would return to the office. But today, like other CRE professionals, Bockart sees signs of hope in the Detroit office market.
It’s true that most employees aren’t back in the office yet. But the day when they return doesn’t seem so far away anymore.
And despite some rough numbers in Savills’ first quarter office report – an office vacancy rate in the Detroit market that had risen to 22.7 percent and a dip in office leasing activity of 22.1 percent – Bockart sees a brighter future for the local office market, both in downtown Detroit and its surrounding communities and suburbs.
Midwest Real Estate News recently spoke with Bockart about the Detroit office market. Here is what he had to say.
The office market has struggled through the pandemic in all the Midwest cities we cover. What does the situation look like now in the Detroit office market?
Greg Bockart: From March of 2020 until now, there has been a total of 55,759 square feet of office subleases in the CBD of Detroit. That’s of 27 million square feet of office space in the CBD. We haven’t seen as much sublease activity as many other urban markets have seen. And there are signs that workers are getting ready to return to downtown offices. Bedrock is starting to have its people come back to work in the office. GM has announced that it is getting people back to the office soon, too.
Compared to other cities that have seen mass amounts of subleases in their office markets, a lot of companies in Detroit’s CBD have hung tight through the pandemic. Some of that has to do with the rebound we had seen in downtown Detroit before the pandemic. A lot of the companies based in Detroit’s CBD have loved what has been happening here the last 10 years or so. They want to stick to their guns and to the commitments they have made to the city.
Are there many opportunities in the Detroit office market now for investors looking for bargains?
Bockart: I don’t think there will be as many people thought there would be when the pandemic started. I think the rebound in the office market will happen faster than we all thought it would. I don’t know that there will be any huge discounts on the sale of office properties at this point in time.
As COVID-19 cases continue to fall, do you think we’ll see more office leasing activity in downtown Detroit?
Bockart: I do think we’ll see more activity, and not just in downtown but in the suburbs, too. Of the subleases we’ve seen in our office market, many of them are from tenants that are looking for more space. That alone is a sign that companies are ready to get their people back to the office, that companies are ready to make commitments to the office environment again. We are working with multiple tenants that are looking for long-term commitments in the city.
Are you already seeing more workers coming back to their offices in the Detroit market?
Bockart: Quicken Loans and Bedrock started gearing back up on June 1. That’s important because they are such a large employer in Detroit. I can tell you, looking out my window, the parking lot I look out at was empty up until a couple of weeks ago. Now it is close to full. People are coming back. You can see more people walking around downtown. The momentum is coming back. It won’t be too long, maybe by July and August, before we are close to back to where we were pre-COVID.
How about the future of office space? Do you think more people will work from home now and will companies embrace a more flexible hybrid work model?
Bockart: That is on everyone’s mind right now as so many companies are paying for office space and not occupying it. But I can also tell you that out of the 20-plus office deals we are working on, only one tenant has decided to go full work-from-home. And that company made the move not just because of COVID but for other reasons, too. Out of everyone else we’ve worked with, I haven’t seen any other companies say that they are committed to a full work-from-home arrangement. Some are looking at implementing a flexible work schedule. But the majority are committed to coming back to an office capacity that is similar to where they were before.
I think some flexibility will stick. Some companies will allow their employees to work remotely more often. Others, though, won’t. Each business is unique. Some companies need their workforce to be in the office. They need that control over what is happening with their workforce. With others, the workforce can work from home more effectively. It depends on how each company is structured.
What do companies lose when their employees are working from home?
Bockart: I do see long-term challenges for the companies that do go 100 percent work-from-home. Just look at retaining and recruiting employees. You have Millennials that already job-hop and change jobs at a rate higher than any age group out there. When you have your employees working from home, you lose that culture and camaraderie that you get from being in an office environment. These Millennials already jump around. What is holding them to the job outside of their income? If there is no culture and camaraderie, they will jump to another company for even a small increase in salary. What does it cost to lose a good employee?
Studies have also found that if some employees are required to come back in the office full-time, some are on flexible schedules and some work from home, that can build animosity. Employees wonder why some people get flexible schedules when they have to come into the office every day. That model where some people work in the office and others are allowed to work remotely can create personal issues and tension within the organization. You end up with employees who aren’t happy.
Then there is the real possibility of depression resulting from the work-from-home model. Younger people starting a new job don’t get to meet people through work if everyone is working from home. You lose the excitement of starting something new, of meeting new people. You don’t get those same connections with other people as you would when working onsite. You lose that few minutes after a meeting when people are sitting around talking about their family, friends and hobbies. You lose those moments that create a deeper connection.
As you mentioned earlier in our conversation, Detroit hasn’t seen as much office subleases as some other markets have during the pandemic. Why has the city’s office market been as resilient as it has been?
Bockart: The commitment companies have to Detroit hasn’t changed. The pandemic was thrown on us, but a majority of the tenants here are committed to the future of this city and what we have accomplished here. Tenants still want to move downtown. There is too much momentum here. They don’t want to see that end. For companies to have their employees out of the office for as long as they have been and to still have minimal subleases come to the market is quite phenomenal.