April 27, 2012

Four on Friday: Coy Davidson of Colliers International in Houston, Part Two

You would be hard pressed to find a commercial real estate figure with a bigger online presence than Coy Davidson, an office broker and senior vice president of Colliers International’s Houston office. He authors a popular blog, The Tenant Advisor, in which he examines current trends in the industry, and he is a passionate advocate of social media. His information-chocked Twitter feed has earned a whopping 10,500 followers.

We recently got a chance to talk about a wide range of commercial real estate issues with Davidson. In this second installment of a two-part Four on Friday, he discusses the performance of the U.S. office market and to what extent teleworking will impact future demand. (Click here to read Part One, in which Davidson discusses the commercial real estate industry's reluctance to embrace social media.)

Coy Davidson Hartman Simons Collier InternationalYou’ve written a lot about teleworking. How big of an impact do you see this having on the overall future demand for office space?

I don’t think it’s going to be as dramatic as people say. We’re going to see a more blended workplace in the future, where employees will have more flexibility to work outside the office as technology continues to advance. But face-to-face communication still remains critical, and some transfer of knowledge is lost when you don’t have it.

I think space allocated per employee will continue to move downward, but these more open office designs that some industries are gravitating to also require more collaborative community areas within the space: small conference rooms, small meeting areas.

The other thing that nobody talks about is the U.S. continues to move to a service, knowledge-based economy from a manufacturing economy, which translates into more office-using employment.

There will be some impact, no doubt. I just don’t think it’s going to be as big as some people who write about it make it sound.

How is 2012 shaping up for the office sector?

Generally speaking, I expect modest improvement for the remainder of 2012. The March job numbers were generally unimpressive, and I think any time you’re in an election year, it creates uncertainty. As we get closer to November, I expect corporate users to take more of a wait-and-see kind of mentality.

Looking at the market from a macro-perspective, the pace of the market recovery is very uneven. In commercial real estate, you really have to look at things on a market-by-market and sector-by-sector basis.

Broadly speaking, are the primary and gateway markets performing better than secondary and tertiary ones?

You hit on a subject for me because, while I’m a little biased, Houston’s been the best office market. We have absorbed more space than anybody in the country recently, but we don’t get the national press that San Francisco, New York – the so-called gateway cities – get.

The office markets that are going well are the ones where the job growth is. Those are the technology- and energy-centric markets. Places like San Francisco; Austin, Texas; and Houston. New York seems to be slowing down but they’ve done well. Even Atlanta did well this past quarter.

How is the market performing when you break it down by property type?

Class A has really been performing better for two years now. That’s getting tighter, and now we’re seeing real rental rate growth in that type. It eventually bleeds down to the Class B properties – when rents go up, people have to trade back down to B properties. We’re seeing that in Houston, and you’re starting to see that, to some degree, in some other markets as well.

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