Bryce Bowden - Commercial Real Estate

Blackstone’s Results Show Real Estate Remains Key Defense Against Inflation, Market Uncertainty
Value of Private Equity Giant’s Opportunistic Investment Portfolio Appreciates 10.3%, Outpacing Other Segments
Blackstone Group sees real estate investments in areas including logistics and rental housing as key defenses against rising inflation and higher interest rates. (Getty Images)
Blackstone Group sees real estate investments in areas including logistics and rental housing as key defenses against rising inflation and higher interest rates. (Getty Images)
By Andria Cheng
CoStar News

April 21, 2022 | 4:16 P.M.
With inflation, higher interest rates and other variables on the minds of investors, Blackstone Group, billed as the world’s largest alternative asset manager and biggest commercial property owner, still sees real estate investments as important to helping it weather market uncertainties.

Its first-quarter results explain why. The gross returns of its opportunistic real estate investment portfolio appreciated 10.3%, while those of its core real estate portfolio rose 7.9%, with both driven by bets on global logistics, residential and life sciences properties. Those scorecards outperformed the 2.8% gain in value of its private equity segment; an 1.2% increase in its hedge funds segment; and a 1.7% increase in its private credit portfolio.

The performance of Blackstone’s real estate also helped push its distributable earnings up 63% to $1.9 billion in the first quarter even as its total revenue and profit declined. Total assets under management rose 41% to $915.5 billion, driven in part by the 52% increase to $298.2 billion in the real estate segment.

While no investment firm is immune to the impact of rising interest rates and higher inflation, Blackstone is fending off market-driven wildcards by investing in areas including “hard assets” that are traditionally safe in an inflationary environment, Jonathan Gray, Blackstone’s president and chief operating officer, said Thursday during a conference call with analysts.

“We’ve been mindful of the prospect of rising interest rates” for several years, he said.

While Blackstone first invested in the logistics sector in 2010 to capitalize on the expected growth in e-commerce, Gray said its current focus on logistics also can help mitigate supply chain-related concerns and disruptions. Blackstone owns $170 billion worth of warehouses worldwide, he said, adding logistics represents 40% of its global real estate portfolio, its largest real estate investment.

“In an inflationary and rising rate environment, the importance of owning things where cash flow can grow is super important,” Gray said on the call, adding real estate sectors with “good fundamentals and short-duration leases” have “pricing power.”

A case in point of Blackstone’s investment strategy, the New York-based firm this week agreed to buy American Campus Communities, the largest developer, owner and manager of student housing complexes in the United States for $12.8 billion in cash. The return of most college students to in-person learning this past fall has given a boost to student housing and driven investor interest, especially as rental prices in cities such as New York have surged to record highs.

In a positive sign for the global travel industry hard hit by coronavirus-driven restrictions, Gray also said Blackstone is seeing a “robust recovery in global travel.” Blackstone, for instance, last quarter agreed to buy Crown Resorts, one of Australia’s biggest casino operators.

While office properties didn’t come up on the call, Blackstone isn’t totally counting out on the hard-hit sector. The firm last quarter bought the partial ownership of New York’s One Manhattan West, located at 401 Ninth Ave., that valued the 67-story, 2.1 million-square-foot office tower at $2.85 billion.

With the growth in business, Blackstone also has been expanding its own real estate footprint as a tenant in cities such as New York. For example, it recently signed an additional 200,000 square feet at 601 Lexington Ave. on the east side of midtown Manhattan after it last year also expanded its headquarters footprint at 345 Park Ave.

A Look at What Many Got Wrong, and What That Might Mean for the Coming Year
Last Year Was Filled With Unexpected Economic Developments. But Will They Be Permanent?
The commercial real estate industry saw plenty of economic surprises in the past year. (Getty Images)
The commercial real estate industry saw plenty of economic surprises in the past year. (Getty Images)
By Rohit Diwadkar
CoStar News

January 14, 2022 | 5:54 P.M.
For the second straight year, the U.S. economy was largely determined by effects of the pandemic. CoStar News looked at five key charts that defied early predictions for 2021. It remains to be seen if the changes will be permanent or whether this year will hold just as many surprises. Here’s what many got wrong:

1. Commercial property investors have been waiting for a boom in distressed sales, hoping for bargains. But that hasn’t happened. Instead, owners hung on, and many sold for record prices.

2. A year ago, the apartment industry was facing down the possibility of an eviction crisis. Further, landlords worried some renters might want to buy a rural home or live with their suburban parents for an extended time. Instead, they returned to cities. Apartment rent growth hit 11.3%, a record high.

3. Federal Reserve Chairman Jerome Powell repeatedly called the inflation rate “transitory,” but it doesn’t appear to be coming down anytime soon from sky-high levels not seen in decades.

4. The pandemic laid waste to retail businesses in 2020, causing numerous bankruptcies. But parts of the industry found their footing last year with more store openings than closings.

5. The jobs market returned to a pre-pandemic level very quickly. The unemployment rate dipped under 4% as many left the workforce entirely.

US Industrial and Multifamily Properties Lure the Most Capital in Year Marked by Uncertainty
Warehouses Across the Country, Sun Belt Apartment Deals Appeal to Investors
Multifamily properties in Sun Belt cities such as Phoenix posted significant gains in rent growth, sales volume and demand among both investors and tenants in 2021. (Getty Images)
Multifamily properties in Sun Belt cities such as Phoenix posted significant gains in rent growth, sales volume and demand among both investors and tenants in 2021. (Getty Images)
By Katie Burke
CoStar News

December 30, 2021 | 4:24 P.M.
Industrial and multifamily properties across the country were on pace to rake in the most capital among commercial real estate in 2021, particularly apartment deals in the Sun Belt and major cities such as New York, Los Angeles and Chicago.

As a whole, the United States' commercial real estate market bounced back in full force from the full lockdown days of the pandemic in 2020. Preliminary CoStar data shows an increase of more than 55% in total deal volume through Dec. 22 compared to all of 2020, with office, retail, industrial, multifamily, land, mixed-use and hospitality each posting a jump of at least 20% over year-end 2020 totals.

Even with the soaring figures — and rising optimism among brokers and developers across the United States — the global health crisis has created more challenges for some property types than others. Industrial, life sciences and Sun Belt multifamily property deals far outpaced those for office and retail heading into 2022, according to capital markets professionals.

"Heading into 2022, you're going to see capital chase the sectors with the most promising rent growth," such as warehouses and biotech real estate, as well as apartments in the U.S. South, Kevin Shannon, the co-head of Newmark's U.S. Capital Markets division, told CoStar News.

Deals for both industrial and multifamily properties across the country attracted the most investment. Nearly $250 billion of apartment deals traded between the beginning of January and Dec. 22, according to preliminary CoStar data, and more than $156.2 billion industrial properties sold over the same time.

Shannon said the multifamily market in Sun Belt cities such as Tampa, Florida; Phoenix, Arizona; Las Vegas, Nevada; and Orlando, Florida, have all "been doing exceptionally well" in terms of generating rising investor demand. What's more, the apartment sector in urban markets such as New York, San Francisco, Los Angeles and Chicago are showing signs of a recovery as tenants begin to make their way back from the suburbs to more concentrated cities.

"For industrial and Sun Belt multifamily properties, the market trends are clear," Shannon said. "Those are demonstrating aggressive lease-up velocity that provides clear growth, while for others like multi-tenant office properties, investors are still waiting to see where those go."

Office Challenge
The uncertainty, especially in terms of when companies will eventually have employees back in the office, weighed down office, urban retail and hospitality properties in those cities that rely on corporate conventions and business travel that has yet to rebound — even though, as a whole, the disruptions of 2020 were so low the percentage increases in 2021 appear large.

For example, the preliminary CoStar data found that while the office sector posted a 36% increase in sales volume for 2021 compared to 2020, it was still the second-worst performing market in terms of year-over-year growth.

The total sales volume increase between all of 2020 and in 2021 through Dec. 22 was 189% for hospitality, 76% for retail, 73% for multifamily, 51% for land and 37% for industrial. Mixed-use properties, many of which are located in dense urban markets, fared the worst, with a 20% increase in sales volume over year-end 2020.

Even with a cloudy outlook for hospitality markets across the country, especially in terms of how they will fare in the face of rising omicron variant cases, investors appear to be willing to place bets on the return of travel, conferences and the broader hospitality market.

In the fourth quarter of 2021 up to Dec. 22, sales volume for hospitality properties skyrocketed by more than 140% compared to all of last year, according to preliminary CoStar data. For the entire year up to that point, investors funneled more than $46.3 billion into hospitality real estate, gobbling up properties in areas that have withstood pandemic-wrought turbulence.

The Four Seasons resort in California's Napa Valley, for example, sold in December for $177.5 million, the second-highest valued U.S. hotel deal ever, according to CoStar data.

More Data Sought
"A lot of markets need more data points before their future growth becomes more clear," the Newmark executive said. "That will be hard to get until people are back in the office and cities return to some kind of normal level of activity."

Over the past decade, the fourth quarter has typically been the strongest for office sales as companies try to wrap up deals before the New Year. Prior to the pandemic, nearly $43.4 billion of office deals closed in the final three months of 2019. That dropped considerably for the same time in 2020, falling to just shy of $29.6 billion.

Confidence in the sector, an eagerness to get an early start on the pandemic recovery and a slew of leases among some of the nation's largest tech companies helped boost deal volume for office properties in 2021, though it still trails pre-crisis figures.

As of Dec. 22, nearly $36 billion of office acquisitions closed, a shot of optimism for the market as it kicks off 2022 but a warning sign that the uncertainty will remain a weight on investment activity.

For Shannon, however, waning uncertainty comes down to a matter of when not if.

"People will need office space, even if you have a hybrid model," the Newmark executive said. "There will be reduced demand, and capital wants to see more people back in the office before making their bets. There will be some uncertainty, but hopefully by the end of 2022 that will clear up as more people are back in the office and decisions and underwriting becomes easier."

US Multifamily Building Permits Jump More Than 32% This Year
Number of Permits Rises in All Four Regions of the Country From 2020

By Rohit Diwadkar
CoStar News

October 5, 2021 | 7:06 P.M.
The number of permits issued for multifamily buildings across the United States in August rose to 57,207 units, the highest figure reported since June 2015 and up 20 percent from July. On a year-to-date basis through August, the number of multifamily permits issued nationally climbed 32.6% to 739,156 this year from the first eight months of 2020.

Multifamily permits increased in all four regions of the country in 2021, based on year-to-date figures through August. The West saw a jump of 35.3%, followed by the Northeast at 28.7%, the South at 25.4% and the Midwest's increase of 25.2%.

When comparing year-to-date figures through August 2021 with the first eight months of 2020, 37 states reported growth in multifamily permits, while 14 states and the District of Columbia recorded a decline.

On that same basis, New Mexico had a sharp rise of 231.4% in multifamily permits, climbing to 1,723 from 520, while Connecticut had the largest decline at 45.7%, falling to 951 from 1,956. And the 10 states with the highest number of multifamily permits combined accounted for 65.17% of the total multifamily permits issued in the first eight months of 2021.

Development Could Shift as Apartments, Single-Family Rentals Become Fastest-Growing Housing Sector

Growth in Inventory of Apartments, Single-Family Rentals Outpaces Owner-Occupied Homes, Data Shows
Rental housing units, including traditional multifamily complexes and single-family rental homes, are growing at a faster pace than owner-occupied homes, according to new data. (Getty Images)
Rental housing units, including traditional multifamily complexes and single-family rental homes, are growing at a faster pace than owner-occupied homes, according to new data. (Getty Images)
By Cara Smith-Tenta
CoStar News
June 21, 2021 | 8:59 P.M.
Apartments and single-family rentals are showing signs of becoming the fastest-growing sectors of the U.S. housing market as prices approas reach record sums that are out of reach of a buyers under age 40, signaling a shift in construction demand.

A lack of mortgage affordability is driving rentals to exceed sales as many potential homebuyers born between 1981 and 1996, the group known as millennials, struggle under the weight of student debt and stagnating wages, according to new findings from Toronto-based global credit rating firm DBRS Morningstar. The trend is already reflected in national multifamily rent growth of 6.2% year-over-year that swelled this spring at a rate more than double the normal seasonal trend, a pace CoStar research shows would equate to the strongest apartment rent gains this century if maintained throughout the year.

“As long as the home prices remain high and you have the tight inventory, I think the market bodes well for single family [rental] developers, as well as those seeking capital to continue that sector,” Adler Salomon, senior vice president at DBRS Morningstar, said in an interview .

With U.S. housing prices soaring, many Americans carrying high debt, and wages staying relatively low, the number of potential buyers priced out of homeownership is growing, according to a DBRS Morningstar report. More people are opting to remain renters because they can’t or don’t want to enter the housing market, creating plenty of runway for developers to build apartments and rental units to address that demand, analysts say.

Between 2000 and 2020, the inventory of single-family rental homes and multifamily rental units grew 26%, compared to owner-occupied single-family homes growing 21.2%, according to DBRS Morningstar, which analyzed U.S. Census Bureau data.

Today's conditions bode well for traditional multifamily developers to build more properties that cater to young adults who aren’t yet ready to enter the housing market, as well as older Americans over the age of 55 who comprise a growing proportion of the rental market, Steven Jellinek, vice president at DBRS Morningstar, said in an interview.

Affordability Concerns
Many Americans simply can’t afford a mortgage, statistics show. Some are pinched by persistent student debt and low wages. The average household with student debt owes $57,520, according to NerdWallet, a personal finance company. The minimum wage, which also influences wages that are paid above it, hasn’t been changed since 2009, when it was raised from $6.55 to $7.25 per hour, according to the U.S. Department of Labor.

Meanwhile, the U.S. median home price has grown to roughly 4.29 times the U.S. median income, up from 3.27 times in 2011, the report said.

“The fact that the millennials are pretty debt burdened, and the fact that the lack of affordability persists [means] we think that they’ll continue to rent,” Salomon said.

Developers seem to be trying to heed the call.

Apartment developers completed more than 425,000 units in 2020, the highest sum of rental units built in a year this century, according to CoStar data. That year, however, also saw the lowest volume of apartment units to begin construction in a single year since 2013, with just 340,000 units breaking ground last year.

Some of that slowdown stems from shortages of steel, lumber and other construction materials. The pandemic supercharged the cyclical nature of the cost of commodities used in the housing and construction market, leading to record-high pricing for materials such as softwood lumber and steel for multiple consecutive months this year, according to the National Association of Home Builders.

Adults under 40 are expected to soon reach a demographic inflection point. Between 2020 and 2030, the U.S. Census Bureau expects the number of Americans between the ages of 30 and 50 — which is also when many people start families — to increase by roughly 8 million, according to Morningstar. That’s compared to that demographic growing by just 1 million between 2010 and 2020, according to Morningstar.

Family renters, who represent one-third of the U.S. renter pool, have diverse housing preferences, the report said. It cited data from John Burns Real Estate Consulting that showed 52% of single-family rental tenants are families, compared with only 30% of multifamily renters, who the report said are far more likely to be under age 35 or over age 65.

Whether those young adults will continue to gravitate toward rentals as they grow older and have families is something the industry is watching closely.

“The majority of single-family rental tenants are families,” Jellinek said, adding that build-to-rent homes also offer them the chance to live in a home without buying one. “People who can’t or don’t want to buy a home are finding new, creative ways to rent, or finding options available to them.”

Lack of Small Apartment Buildings Could Drive National Housing Shortage for Decades
Production of Small Multifamily Buildings Fell 75% Over the Past 20 Years
Homebuilding has trailed population growth in all U.S. cities including Los Angeles. (Carol M. Highsmith/Department of State)
Homebuilding has trailed population growth in all U.S. cities including Los Angeles. (Carol M. Highsmith/Department of State)
By Cara Smith-Tenta
CoStar News

June 20, 2021 | 9:51 P.M.
The nation's estimated shortage of at least 5.5 million affordable housing units, particularly apartments, is projected by the largest real estate group to take two decades to close without action from developers and policymakers focused on middle- and lower-income Americans.

A severe lack of residential development that has trailed population growth since 2001 created a gap of 5.5 million to 6.8 million housing units of all kinds, including rentals, says real estate economics firm Rosen Consulting Group in a report for the National Association of Realtors, an industry lobbying group. The findings build on similar rent increase data emerging in CoStar research and the latest conclusions of national housing advocates.

“The scale of underbuilding and the existing demand-supply gap is enormous and will require a major national commitment to build more housing of all types,” according to the analysis.

The most dramatic decline in production has been in two- to four-unit multifamily buildings, which fell by almost 75% during the past two decades, compared with the long-term average from 1968 to 2000, according to the findings. That's led to a "large undersupply of what were historically more affordable homes and apartments, further exacerbating the affordability crisis across the country," the analysis states.

While the initial findings are compelling, when analyzed, the often-overlooked solution of widespread construction of more affordable apartment buildings that may generate lower rental returns for investors than high-end units can appear daunting. The report comes as affordable housing emerges as a central issue following the pandemic and its economic fallout, including higher unemployment and an eviction moratorium that some landlord advocates argue was unsustainable.

These events, as well as yearslong sociopolitical issues such as raising the federal minimum wage, have revealed an economic fragility among the nation's renters and would-be homebuyers. Put another way, the mounting supply problem in an already precarious rental and buying market could make a complicated issue even more pressing. Already, housing affordability concerns in California, the state with the largest homeless population, are sparking legislative proposals aimed at addressing the issue to help spur more building.

Developers would need to build more than 2 million housing units per year over the next 10 years to fill the gap, the report says. That would equate to a 60% increase in housing starts each year, relative to the almost 1.3 million homes that were built in 2020, according to the report.

It notes that if building were to continue at its current pace of a seasonally adjusted annual rate of about 1.7 million — the most rapid pace in more than a decade — it would take more than two decades to close a housing gap of 5.5 million units.

The report falls generally in line, albeit slightly more conservative, with other estimates of the nation's housing shortage by groups that follow the issue closely. The National Low Income Housing Coalition, for instance, estimates that the United States is facing an affordable housing shortage of more than 7.2 million units.

Overall, the lack of supply has helped push housing prices higher, putting existing housing even further out of reach for lower- and middle-income residents. The average apartment rent in the United States increased to $1,401 per unit in the first quarter of 2021 compared to $1,079 per month in the first quarter of 2011, according to CoStar research.

21st-Century Concern
The nation’s housing shortage is a relatively new phenomenon, created this century. Between 1968 and 2000, the total stock of U.S. homes grew an average of 1.7% annually. But between 2000 and 2010, the nation’s housing stock grew by 1%, and by just 0.7% between 2010 and 2020.

From 2001 to 2020, the average annual gap in multifamily housing production for structures with at least five units was 120,000 units, compared with the long-term average from 1968 to 2000, or a cumulative gap of almost 2.4 million multifamily units, the report said.

"In addition to the for-sale housing market, renter households faced severe negative consequences from the past two decades of underbuilding," reads the report. "Even before the large financial burdens placed on renters by the COVID-19 pandemic, more than 40% of renter households were cost burdened, while nearly one quarter were ‘severely burdened,’ or spending more than 50% of their income on housing."

Overall, housing development largely slowed because of a combination of a lack of public investments in housing and an underbuilding of homes that now affects all regions of the United States, according to the report titled "Housing is Critical Infrastructure: Social and Economic Benefits of Building More Housing."

The growing imbalance sparked a national push toward recognizing housing as infrastructure beginning years ago.

While the sentiment is partly an effort in rebranding, housing advocates argue the change would represent an acknowledgment that reliable housing is just as important to a city’s success as public roadways, highways, sewage systems and other public developments.

“We firmly believe that housing, in the right location, is a better infrastructure investment than federal funding of high-speed highways,” Cheryl Cort, policy director for the Washington, D.C.-based community-focused development organization Coalition for Smarter Growth, said in an interview with CoStar News in January.

She added that building more housing in cities can create a ripple effect of less dependence on roadways, lower rates of homelessness, improved overall public health, easier access to jobs and more walkable communities.

Federal Investment Considered
The Biden administration has been working to finalize a significant investment in affordable housing. In May, Housing and Urban Development Secretary Marcia Fudge unveiled that, as part of President Biden's $2.3 trillion infrastructure proposal, $318 billion would go toward investments in housing.

But in recent weeks, the $2.3 trillion plan has been cast aside in favor of a roughly $1 trillion, more bipartisan infrastructure plan that is still being negotiated between members of the House and Senate.

The report recommends a number of policy changes that would address financial and bureaucratic barriers that contribute to the lack of development.

It suggests expanding resources and programs that address a shortage of financing for affordable housing development as well as using federal resources to tackle construction challenges such as rising material costs and labor shortages.

Other recommendations include incentivizing local governments to change zoning and regulations that would allow for increased housing development and encourage the transformation of some underused commercial space into housing.

"Perhaps most importantly, addressing the national underbuilding gap will require a coordinated approach to planning, funding and development of all forms of infrastructure to not only build more housing, but also build better housing that will be more inclusive and well-integrated into local communities," reads the report.

It notes that "mechanisms to achieve these goals include strengthening and expanding the existing Affirmatively Furthering Fair Housing framework, a comprehensive recognition of the need for genuine community engagement in all types of infrastructure development and systematic adoption of planning tools such as fair housing and equity impact analyses."

"Additional public funding and policy incentives for construction will very clearly provide huge benefits to our nation's economy, and our work to close this gap will be particularly impactful for lower-income households, households of color and millennials," National Association of Realtors President Charlie Oppler said in a statement.

Blackstone Expects ‘Vast Majority’ of Employees Back in Office, While WeWork Sees Rebound
DLA Piper Survey Signals ‘Dramatic Return of Optimism’ in Economy, Real Estate
WeWork said April was its best month since February 2020, signaling workers want to get back to the office. (Getty Images)
WeWork said April was its best month since February 2020, signaling workers want to get back to the office. (Getty Images)
By Andria Cheng
CoStar News

May 5, 2021 | 7:06 P.M.
Blackstone Group President and Chief Operating Officer Jonathan Gray has been going to the New York office of the world’s largest private equity firm since July. He expects to have plenty of company at some point.

“I was by myself at home sitting in front of two screens” during the start of the coronavirus outbreak, Gray said in an interview with David Rubenstein, co-founder and co-chairman of rival private equity firm The Carlyle Group, at the annual DLA Piper Global Real Estate Summit on Wednesday. “I found it very frustrating. ... I had a need to connect.”

Blackstone, with $649 billion in assets under management, wants employees back.

“I believe we are much better together,” Gray said. “We hired 700 people since the pandemic. It’s hard to build the relationship and culture and understand how others operate. We have a strong bias when it’s safe to bring people back. … [For] the vast majority of people, we expect [them] to be back in the office. Our bias will be together.”

Gray also said New York will continue to be the company’s major hub even as Blackstone, which Fortune has ranked as the world’s largest commercial landlord, has a footprint globally and recently opened or expanded office space in Israel and Miami.

“We need to attract talent where they are located,” Gray said. It’s about “getting closer to talent.”

Markets with skilled workers will also provide opportunities in office real estate investments, he said.

Gray’s comments gave a shot of confidence and added more hopeful signs to the hard-hit office sector. In New York, the largest U.S. commercial real estate market, the office vacancy rate has surged to a record high of 11.4% as the amount of sublet space rose more than 50% in the past year, according to CoStar data.

Of course, companies like Blackstone and shared office space provider WeWork stand to benefit by boosting optimism about the state of the office market, particularly in New York City. Even so, real estate companies across the country are saying they are seeing a pickup in activity of late.

WeWork Sees Growth
WeWork CEO Sandeep Mathrani said at the virtual event the flexible workspace provider has seen a rebound that’s been much faster than it expected. April was WeWork’s best month since February 2020 as it saw double-digit growth in over 60 markets, he said.

In New York, where WeWork is based, he said the company saw net desk sales turn positive in March and April after a mostly negative year, which means it sold more desks than it lost through downgrade or nonrenewal. Sales were also positive globally.

That “means people are coming back,” Mathrani said, adding WeWork has also seen activity rebounding in San Francisco. “Flex is the first leading indicator of long-term office space. If our business picks up, it’s a leading indicator that people want to come back to work.”

CEOs of major office landlords, including Vornado Realty Trust, SL Green Realty and Columbia Property Trust, have all expressed optimism recently as they pointed to pickups in leasing activities.

Other executives also are hopeful. DLA Piper’s annual state of the real estate market survey of C-suite real estate executives released Wednesday showed “a dramatic return of optimism for both the overall economy and commercial real estate market.” For instance, 74% of respondents anticipate a bullish market in the next 12 months — up from 21% in the 2020 survey and on par with pre-pandemic levels in the 2019 survey.

Still, while 60% expect roughly 3 in 4 office workers will be back in their offices full time 12 months from now, nearly as many agree that office workers will spend less time overall in a physical office under a hybrid model that includes working from home. Signaling the challenges still facing the sector, 84% of respondents anticipate it will take at least two years for the U.S. office building vacancy rate to return to pre-pandemic levels, with 46% saying it will take more than three years.

With their need to “collaborate and innovate much faster,” Mathrani said small and midsize companies have returned to WeWork space at a quick pace. But with vast vaccinations, use from large enterprise clients also has picked up, he said.

“There’s a rapid shift of coworking from a small space to a large scale,” he said.

Seeing Other People
WeWork, which is going public through a special-purpose acquisition company deal, said in March it wants larger enterprise clients to eventually become 65% of its membership base from about half currently.

In another positive sign for the office sector, contrary to expectations that common areas may be out of vogue in the workplace of the future because of COVID-19, he said WeWork has seen the opposite.

“There was a big conversation about whether people want to be more secluded,” he said. But “open plan has come back to play. I’m very focused on our common areas. People like to see other people. There’s a whole social aspect. ... Open plan is more the norm than not the norm.”

In fact, WeWork’s common areas are the first places that get “filled up” when he thought they were going to be “deserted,” he said.

Boston Properties CEO Owen Thomas said he’s not seen much change in office space design either, outside of more amenities being added, as companies start to bring workers back.

“Every business leader I talk to is anxious to get employees back to work,” Thomas said. They say, “‘What’s key for me to be successful is to get my workforce back. How do I make coming back to work a great experience?’”