2Q21 Letter from CEO: An Overview of the Market & Portfolio

It’s an interesting time for the office market, to say the least. Uncertainty regarding the employee return to offices, WFH initiatives, and large increases in sublease supply in some well-known central business districts have led to sensational headlines regarding the future of office space. As is typical with trending topics, there are elements of truth mixed with elements of hyperbole, resulting in opportunity for those who understand the dynamics on the ground. 

The economy is also in an uncertain period with a quick rebound in employment (sharply off the lows), supported by fiscal stimulus and pent up demand, offset by concerns over pockets of supply-demand imbalances in goods and services.

What we see as investors today is vast dispersion. Major metropolitan areas, specifically those gateway markets with significant exposure to technology, are hurting for occupancy and the backfill flows have yet to materialize en masse. Smaller markets that did not see explosive demand in the past are seeing less sublease pressure, but face similar demand constraints. 

On the tenant side, tour activity has picked up fairly dramatically from the depth of the pandemic but is focused on Class A locations and/or Class A product. Midwestern and southeastern cities are returning to the office faster and earlier than their west coast and northeast counterparts. 

Portfolio Performance
Our portfolio has been resilient as we expect most of our tenants to be fully back in the office by fall. 

We signed two leases this year taking occupancy at the Allied Solutions Building to 100% and are actively negotiating renewals at Streitwise Plaza (St. Louis). Furthermore, we see activity through the St. Louis MSA focused on already tight office submarkets for top-of-market product, and we expect that to ultimately provide tailwinds.

On the investing side, we see evidence that there may be opportunities to buy top quality assets at fair prices, especially relative to other property types. We will remain patient and wait for the right opportunities to acquire generational assets for the long term.