Archives for September 2020

Despite the well-documented plummet in demand for hotel rooms that has only partially recovered from the lows at the height of worldwide COVID-19 precipitated lockdowns, developers are continuing to bring new projects online.
It’s a difficult time to operate any hotel—let alone open a new one. Just 48.6 percent of hotel rooms were occupied in August 2020, according to data from STR Inc. That’s down sharply from 71.2 percent the year before. However, as low as the occupancy rate was for hotels in August, it’s much better than the low of just 24.4 percent in April.

The problem is that the pipeline for hotel rooms was chock full of projects before the pandemic hit. Developers had 217,000 new hotel rooms under construction in September 2020, according to STR. That’s up from 215,000 at end of June 2020 and 202,000 this time a year ago.
Developers have had little choice but to try to bring those projects online and compete the best they can for bookings.
“We are getting our fair share of the low demand in the market,” says Patrick Short, president of Atlanta-based Peachtree Hospitality Management, which has opened three new hotels so far in 2020, totaling 279 new rooms.
Despite the difficult economy, very few developers have stopped construction on hotels they started building before the pandemic.

“There are only one or two hotels under construction that are falling out of the pipeline,” says Jan Freitag, senior vice president of lodging insights for STR. “If your hotels are 50 percent to 75 percent complete, those hotels are going to get done.”
Hotel developers are slightly more likely to consider dropping plans to build hotels if they have not yet broken ground—but not by much. Developers deferred or abandoned plans to build just 58 hotel properties out of 4,052 hotel developments that were in the planning stages in August 2020, according to STR. That more than the same month the year before, but it is still very few, considering the economic chaos caused by the coronavirus.
“The general sentiment around construction seems to indicate that although we took a hit from COVID-19 [the disease caused by the coronavirus], projects under development are still moving forward,” says Peachtree’s Short.
That’s partly because once a hotel opens, it typically only takes a few months before it is able to fill as many of its rooms as other, comparable hotels nearby, earning a respectable amount of revenue per available room (RevPAR).
“For branded hotels, we would expect to achieve 100 percent RevPAR index within three to six months, depending on the brand,” says Mary Beth Cutshall, executive vice president and chief business development officer for Hospitality Ventures Management Group (HVMG).
A typical limited service hotel can often operate without losing money with an occupancy rate of just 30 percent, even with the precautions properties are taking to making sure employees and guests are safe. This summer, limited service hotels filled over 50 percent of their rooms on average, according to STR. If a new limited service hotel could achieve that average occupancy rate, it was worth it to open for business.
The most successful new hotels this summer have been limited-service properties near natural features like beaches that are also within driving distance of major metropolitan areas where many potential hotel guests live.
“Leisure markets are faring significantly better than those that are more corporate driven,” says Short. With fewer people flying to destination vacations and international trips ground to a near halt, Americans who can afford to travel are making the best of things by taking trips by car.
“Some of our hotels in drive-to beach destinations are actually performing better now as compared to last year from a RevPAR perspective.”
Full-service hotels, which typically include dining services and meeting space, need to fill more rooms—at least 40 percent—to break even. Also, these hotels often rely on business travellers and corporate groups, which have not been renting many rooms during the crisis. The occupancy rates for full-service hotels have hovered in the 30 percent range this summer, according to STR.
“Full-service hotels may not find it advantageous to open in the fall of 2020, and might instead wait to the first quarter of 2021,” says Freitag.
New hotels can also cut their expenses to make up for fewer guests. “We did scale back on opening staffing and are utilizing managers to cover shifts as we ramp up,” says Short.
For example, at Peachtree’s three new hotels, all the rooms are open and available, though company has hired fewer workers than usual for an opening. “We did scale back on opening staffing and are utilizing managers to cover shifts as we ramp up,” says Short. “Hourly associates have been very difficult to find.”
Peachtree is also spending less on marketing these new hotel rooms. “The marketing we are doing is with travel ads with the over-the-air television channels,” says Short. “Typical, local marketing has been put on hold.”
Peachtree’s goal has been to get its fair share of the demand in the market to its new hotel rooms, in addition to reach decision makers at local corporate account that may eventually rent rooms as the economy recovers from the pandemic, according to Short.
Even full-service hotels can reduce their expenses by cutting some of their services.
“By suspending various amenities such as valet and room service, hotels can scale back and save money,” says Skyler G. Cooper, regional manager and national director, hospitality division for Marcus & Millichap. “As we continue to move towards a recovery, we expect to see hotels expand the number of employees on their payroll and open amenities back up.”
Source: “Hotel Developers Continue to Open New Sites Despite Brutal Market Conditions”

Earlier this year, many of the largest technology firms announced they would let their employees work from home well into next year or even permanently. This made it seem like the technology sector was fully on board with adapting a remote working model permanently. Yet the fact that many of the tech giants have continued to significantly expand their office space holdings throughout the pandemic tells a more complicated story.
It’s true that many tech companies are holdings off on making new space commitments until 2021 and some are giving back space they have already committed to, says Colin Yasukochi, executive director of the tech insights center with real estate services firm CBRE. For example, Twitter has made the decision to allow employees work from home permanently. Pinterest has terminated a deal for 490,000 sq. ft. of office space near its current San Francisco headquarters. But some of the largest companies in the sector recognize they will likely eventually need more office space due to future growth, even with many employees working from home, he notes.

All major tech companies have adopted flexible work policies, but despite decreased urgency for leasing space in the short term, Google, Facebook, Microsoft and Amazon all continuing to expand their office footprints.

Amazon, which has seen its profits grow dramatically during the pandemic and has been hiring thousands of new workers, has been in the forefront of that movement. In August, the e-commerce giant announced that it plans to invest $1.4 billion in 900,000 sq. ft. of new office space in six U.S. “tech hub” cities, including Dallas, Denver, Detroit, Phoenix, San Diego and New York City. These new properties will house a variety of employees, including cloud infrastructure architects, software engineers, data scientists, product managers and user experience designers.
Meanwhile, in early August, Facebook, which is allowing its employees to work from home until July 2021, signed a 730,000-sq.-ft. lease deal that includes the entire 107-year-old, redeveloped James A. Farley Building in Midtown Manhattan, which is located adjacent to Penn Station. The space will house up to 8,500 new jobs. With this addition, Facebook now has 2.2 million sq. ft. of office space on Manhattan’s West Side. The company leased 1.5 million sq. ft. at Hudson Yards late last year, and already had about 4,000 workers stationed in its Manhattan offices pre-pandemic.
In September, the company followed the new lease in New York City with an acquisition of a 400,000-sq.-ft. office campus in Bellevue, Wash. from sports retailer REI for $367.6 million. REI sold its newly developed headquarters complex when it decided to go totally remote.
Microsoft, whose CEO Satya Nadella has gone on the record about his less than optimistic view on the viability of permanent remote working, in May signed a lease for a two-building, 523,000-sq.-ft. office project in Atlanta’s Atlantic Yards. The development is expected to house 1,500 new jobs, according to GlobeSt.com.
Some smaller technology players, including BAE Systems and Adobe, have also struck deals for more office space in the months since the pandemic began in cities including Austin, Texas and Seattle.
In addition, Google has big plans for mixed-use development. Back in April, the firm paused a deal to buy 10 buildings in Mountain View, Calif., which it had struck prior to the lockdowns. Then in July, the tech giant announced a partnership with development firm Lendlease to develop three mixed-use projects on Google-owned land in Mountain View, San Jose and Sunnyvale, Calif.
The three mixed-use neighborhoods, which will be developed over the next 10 to 15 years, will provide 15 million sq. ft. of retail; hospitality components and 15,000 new housing units.
Google announced earlier this month that the first of these developments, which is pending approvals and might break ground early next year, will be Middlefield Park, reported the Mountain View Voice. This 40-acre redevelopment in the East Whisman area of Mountain View already serves as home to Google’s headquarters and is located adjacent to the Middlefield VTA light rail station. It will provide 1.3 million sq. ft. of new office space, as well as up to 1,850 homes, 30,000 sq. ft. of retail, 20,000 sq. ft. of civic and event space and at least 12 acres of parks and open space.
Anticipated future growth by publicly-traded tech companies is driving all of these deals, according to Yasukochi. “The tech industry is positioned for significant growth post-COVID pandemic and [they] are taking into consideration the fact they will always need some office space,” he says.
Adoption of long-term remote work policies will result in a more distributed workforce going forward, but a physical office will remain a key element in an increasingly hybrid workplace strategy, adds Jack Seymour, an associate in the San Francisco office of real estate services firm Transwestern.
“For the tech giants—Google, Facebook, Amazon, Microsoft and the like—there are a few factors as to why these companies are expanding their office portfolios during the pandemic,” he says. The most obvious of these is that their projected headcount trajectories far exceed any anticipated reduction in the need for office space resulting from an increase in remote workers.
“In short, they expect large portions of their workforce to return to the office environment when it is safe to do so,” Seymore notes, adding that social distancing guidelines will require additional space for the tech firms. The tech office environments have tended to have higher density than most offices, so they will need more additional square footage per employee when creating workspaces designed and configured to function safely in a post-pandemic world.
“There will absolutely be a mix of remote work and back-to-office,” says Robert Sammons, senior director of research in Cushman & Wakefield’s Bay Area office. Tech companies will continue to expand their office space as they grow their workforces, he notes. Some positions will always require face-to-face collaboration. “Collaboration, company culture and onboarding of new employees is lacking in a remote working environment,” Sammons says.
“That could result in more of a ‘hub-and-spoke’ model where some workers have the option of getting into a workspace near where they live and at other times coming back to the mother ship,” he suggests, noting that there are also workers who find it necessary and desirable to be in an office environment most, if not all, of the time.
Sammons also notes that space expansion by growing tech, advertising, media and information (TAMI) occupiers represents an opportunistic approach to securing talent, whether that’s in gateway or secondary markets. “Decisions continue to be made regarding new locations and/or relocations during this time,” he says. Major TAMI companies continue to lease or buy properties in primary tech locations, like New York City and Seattle; others are relocating from major tech markets like the Bay Area to secondary markets with significant tech talent like Denver.
He also suggests that well-capitalized TAMI companies may find this an opportunistic time to move forward on office space expansions at lower price points and greater availability of product than six months ago. According to Yasukochi, however, current concessions and incentives on office space are minimal compared to the last recession.
In the second quarter, office leasing overall was down 44 percent year-over-year nationally, with leasing by technology companies down 46 percent, says Yasukochi. He notes that San Francisco is experiencing a reduction in tech occupancy, in part because smaller tech firms realized the benefits of working remotely and decided they don’t need office space at all.
“One thing is certain,” Yasukochi adds, “Employers providing greater work flexibility will be able to recruit talent from across the country and world, which will provide opportunities for professionals in small markets often overlooked.”
Seymour agrees, noting that choice of workplace location and environment is not only important to attracting local talent, it provides the opportunity for recruiting talent without geographic limitations.
“You would be hard pressed finding a technology company that didn’t have some sort of remote work policy in place before the pandemic—it is absolutely necessary for employers to offer flexible workplace solutions if they want to compete for talent,” he continues. “Without a doubt, a hybrid model centered around choice and flexibility seems to be the most popular, but where a company falls on the flexible work spectrum is largely a result of their industry, core business functions and, of course, culture.”
Facebook’s recent lease in New York and acquisition in Bellevue speaks to the company’s rapid, continued expansion that saw more than 4,200 new hires in the second quarter alone, Seymour says. “Large technology companies remain hungry for space in traditional headquarters markets, such as the Bay Area and New York City.” But he notes that in comparing tech leasing activity in the second quarter of 2020 with the second quarter of 2019 the strongest performing markets were Washington, D.C, Atlanta and San Diego.
Source: “Tech Giants’ Projected Headcount Growth Means They Won’t Be Giving Up on Office Space”