Colliers report: Quality matters. Industrial might have peaked. And investors are still sinking their dollars in multifamily

By Dan Rafter, Editor

Acontinued flight to quality office assets. A slowdown in demand for industrial properties. A multifamily sector that remains the darling of investors.

These are some of the highlights from Colliers’ Global Investor Outlook, a look at investors’ sentiments regarding commercial real estate in 2023.

We recently spoke with Steig Seward, U.S. head of research for Colliers, about the report’s findings and the state of commercial real estate in 2023. Here is some of what he had to say.

Colliers’ report shows that investors, like tenants themselves, are interested in the highest-quality office properties today. Is that a trend that is still going strong?

Steig Seward: There has been a prolonged flight to quality in the office sector. Companies are engaged in a war for talent. HR departments are doing what they can to retain their top talent and attract new talent. Having office space that makes people want to come back to the office is a high preference for leadership teams and HR departments. Many companies are upgrading their addresses to help combat that talent drain.

Some of these companies might reduce their office footprint once they move. But they will pay a higher rent. If you net it out, their total operations costs remain the same, but they still get to upgrade their address and, hopefully, attract the best talent.

In the markets that we cover, newer, class-A office space is seeing the lowest vacancy rates.

Seward: These newer buildings are designed differently. There is a shift in these newer buildings toward more collaborative work environments and more meeting spaces as opposed to dedicated offices. Definitely, the floor plans and layouts of newer buildings are more conducive to that type of work. They also have higher-quality amenities, outside patios, concierge services and perks like that.

What will happen to those older office buildings, though, that lack the amenities that tenants today favor?

Seward: We conducted a study recently of top gateway markets. We found that 35% of all the buildings in those markets are older than 50 years. They are facing functional obsolescence because of time. Not all those office buildings can be converted into something else. They all can’t be converted into multifamily or hotels. Only a small percentage, maybe 10% or less, would be a good fit for conversion. It’s going to be interesting to see what happens with these

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