Doug Jamieson, senior managing director at Savills in New York – and co-product manager of the firm’s portfolio analytics and visualisation platform Knowledge Cubed – joins Montfort’s Andrew Teacher to discuss the outlook for the office market in the Big Apple and beyond, the greater need for data in the evolving world of work, and why the real estate industry shouldn’t fear AI.
Doug Jamieson isn’t sentimental about the state of the office market in New York, admitting that it’s in a “tough spot”.
While leasing is not an issue for the newest buildings with the best amenities, the “commodity products” – developments built from the 1950s through to a decade ago – are often sitting unused.
“People are trying to understand whether they’re throwing good money after bad,” he observes, “and which assets they’re just going to give up on.”
Compared to 2008, when lenders were willing to “blend and extend” – extend the lease term and blend existing rents with a new rate in order to give owners more time and, indeed, hope that the market might recover – there is a lot less of this lenient approach this time around.
The interest-only several-year notes that dominate the US real estate debt market mean that when refinancing comes knocking, owners may have zero or negative equity in the asset, combined with significantly higher borrowing costs – and for the oldest, least sustainable buildings, an inability to get financing at any price.
It’s a mixed picture elsewhere in the States. The Bay Area’s tech giants seem to be coaxing employees back to the office after being among the most liberal in their working from home policies, but leasing still remains low and vacancies high.
In Austin, where “half a million square feet on the sublease market actually moves the entire market”, it isn’t yet clear what the effect of tech giants like Facebook and Google moving in will be.
“Other cities like Dallas, Atlanta and Tampa are growing due to natural factors – which is high access to education, a young, educated and growing workforce, and net domestic migration,” he explains.
If there is a trend, it is that the most expensive coastal cities are generally faring worse than smaller conurbations with a more affordable cost of living that have actively pushed for talent to relocate.
“We have a location consulting group that’s been moving insurance and banking companies out of New York down south for years, and they’re doing it more with tech companies,” Jamieson notes. Deutsche Bank, Credit Suisse, MetLife, Fidelity and AIG’s traditionally New York-heavy staff have been moving down to the Carolinas by the thousands.
In his capacity as co-product manager of Knowledge Cubed, a data analytics platform owned by Savills specialising in workplace safety and user experience, Jamieson has more insight than most into the needs of these large occupiers.
By collecting data on desk and conference room occupancy, maintenance requests, and even lunch orders through an app, the aim is to create a “monitoring and feedback loop” to drive decision-making that ultimately makes employees more engaged at work.
Comparing the app to a “Fitbit for the office”, in Jamieson’s analogy Savills’ partnership with workplace experience platform HqO is the “doctor or personal trainer” that can make sense of the data and provide actionable recommendations.
But the industry shouldn’t be scared of AI, Jamieson says, which Savills has been employing in some form since 2017.
“AI won’t take your job, but somebody using AI will probably take your job because they will be able to do several times as much work in the same amount of time,” he explains.
While an all-powerful sentient machine intelligence may not present an immediate threat to the real estate industry, higher bond yields and interest rates might.
“Why would you own a building now at a four and a half percent cap rate if treasuries or a high yield savings account pay the same?” he muses.
“There’s going to have to be a complete change to the way returns are generated in this industry, and there are some players who are going to do it well.”