The office market has become the most controversial asset class in commercial real estate, according to Spencer Levy, chairman of Americas research and senior economic advisor for CBRE, who recently spoke at a CREW San Diego virtual event. While hotel and retail properties have certainly been hit the hardest by the pandemic, there is significant uncertainty about the future of office demand. In the meantime, the sector is benefitting from high rent collection—above 90%—which has stabilized the sector in the near term.

According to Levy, the office market has bifurcated during the market dislocation. Multi-tenant properties with short lease terms aren't doing well, but properties with larger, corporate tenants are trading hands. The same is true in the retail space. Multi-tenant properties are struggling, in terms of both rent collections and investment demand. However, properties with essential retailer occupancy, like grocery stores, are performing better.

The office dislocation is also market driven. CBD areas and dense urban markets have faced bigger drops in occupancy and rents than counterparts in the suburbs and smaller metros. "CBD markets will take longer to come back than drive-to markets with low density," says Levy. The window of opportunity is longer in big cities than secondary, drive-to markets." As a result, Levy recommends that office tenants in smaller metros and secondary markets negotiate renewals earlier than in major metros. "Negotiate your deal sooner in Carlsbad than L.A.," he says.