Everything That Was Old Becomes New Again

In 2026, the office market is coming back. Prominent Fortune 500 companies are calling their employees back into the office, including JPMorgan, which is bringing back its 316,000 employees and opening a 2,500,000-square-foot office building in Manhattan (the building has its own branded coffee). Employers are beginning to regain the power to call their teams back into the office, given an uptick in unemployment and slowed hiring in white-collar sectors (Job postings for white-collar roles fell by 35.8% between Q1 2023 and Q1 2025.) Additionally, 80% of employers expect to track office attendance, which will serve as a KPI for determining employee performance.

270 Park Avenue and Blend 270 (its branded coffee)

This change in philosophy among employers, after a long winter in the office, is starting to show up in US office real estate statistics. 23 of the top 40 US office markets are seeing falling vacancy rates, and net absorption of office space is positive for the seventh straight quarter. Even with this positive momentum, new investment office development is nearly nonexistent; down 89% compared to 2020. This means there is a significant window for office investors to capture rental increases and new tenants. With minimal additional square footage coming to market, timely and creative investors will be winners when they purchase buildings with a reset basis. The market's fear of office over the last five years has diminished demand from both equity and debt providers, devaluing the purchase price of office buildings for smart operators.

U.S. Office Sale Price PSF

This is true of every asset, but the biggest winners will be those who exploit this momentary devaluation in office markets to pick up buildings in great locations with strong amenities. Returning to the office means making the experience more attractive for employees by providing amenities on-site and in the surrounding area. Amenities have grown in importance for employees, so, in turn, they have become more important to decision makers. With this in mind, some buildings will go dark and may never reach high occupancy levels again, and it may make more financial sense to demolish and develop an alternative use. Some examples of this include suburban office parks in the western suburbs of Chicago, where vacancy rates can reach 30%+, and old-school corporate office campuses. This product will become obsolete, and it will take creativity and financial savvy to make the sites viable for another use.

How Does This Relate To The Flex Real Estate Investment Outlook?

We do have exposure to office in our portfolio, owning a flex industrial property with tenancy that can be up to 100% office. These flex spaces we own and are targeting to buy are easily redevelopable into small-bay warehouses. I predict the resurgence of traditional office products will lead to measured cap rate compression in flex buildings with heavy office allocations and to higher rental rates. Given the increased demand for office buildings with high-quality amenities and prime locations, we can use this information to target properties with great lifestyle and retail amenities nearby, with walkability to these amenities being a huge bonus. Flex Real Estate participating in the new office environment means buying flex industrial properties in great areas and maximizing the tenant pool we can lease to.

Reply to this email and let me know if there are any specific topics you would like to hear about next. Thank you for reading, and stay tuned for the February Focus!

Contact Andrew:

President

513-305-9692

andrew@flex-cre.com

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