Firms hope worst is over for troubled office leasing sector

The country’s largest commercial property firm is looking for a rebound this year in the battered real estate business.

“We expect 2024 to be the beginning of a market recovery, albeit a more gradual one,” said Emma Giamartino, chief financial officer for CBRE Group.

The Dallas-based commercial property giant this week reported better than expected profits and revenues for the most recent quarter.

There was even a slight uptick in revenues from project leasing in recent months.

“We are cautiously optimistic that the worst is over for office leasing, particularly for Class A properties, where we generate approximately two-thirds of leasing revenue,” Giamartino said in a conference call with securities analysts. “U.S. office demand has been gradually turning up over the last six months.

“The growing consensus about an economic soft landing coupled with the apparent stabilization of office utilization rates may make more employers confident enough to commit to office leases.”

The office market has been the hardest hit commercial property sector, as workers have been slow to return from home following the pandemic.

Office building vacancies across many U.S. metro areas and in Dallas-fort Worth are near record highs. Leasing activity has slowed to a trickle with many companies cutting back the amount of office space they use.

Almost 11 million square feet of sublease office space has been dumped on the D-FW market by businesses.

“We think it has bottomed out,” said CBRE CEO Bob Sulentic.

More workers are returning to the office and demand for space is growing, Sulentic said.

“There’s just a clear amount of pressure from companies to get their people back into the office for all kinds of reasons,” he said. “And so what you’re seeing is that people are redoing their space, trying to make it a better environment for their employees.

“Buildings that aren’t good are struggling and they’re going to continue to struggle.”

Predictions of a dark future for office buildings are exaggerated “because people tend to like negative news,” Sulentic said.

CBRE Group — which owns Dallas developer Trammell Crow Co. — is already positioning for a rebound in the commercial property market.

“We are taking on a steady stream of new land sites in Trammell Crow Co.,” Sulentic said. “We’ve been able to secure a good number of development opportunities. What’s happened is sites that were otherwise not available have become available because many, many people are on the sidelines.”

Trammell Crow Co. just broke ground on Dallas’ Knox Street on one of the largest new mixed-use projects in North Texas. The 4-acre residential, office, retail and hotel development on the eastern edge of Highland Park is being built in a partnership with MSD Partners, The Retail Connection and Highland Park Village Associates.

CBRE had $15.8 billion in worldwide real estate developments underway at the end of the year.

“Investor and lender sentiment has improved and we anticipate this will lead to increased transaction volumes, starting in the second half of the year when short-term interest rates are expected to fall,” Sulentic said.