2024 Commercial Development Outlook: Matt Blevins

Blevins’ 2024 Projection: The commercial development market remains unpredictable. Everybody is hopeful that interest rates come down and costs come down. I’m hoping with regards to material costs we’ve kind of stabilized at this point. I wouldn’t expect any drastic changes in price downward in most material costs. I’d love to say by the end of 2024 that the market will soften, and we’ll get a big injection of new blood into those labor pools, but unless we have a whole bunch of kids getting out of high school that are going straight into trade schools, that pressure is not going to be alleviated in the next 18-24 months.

Moody’s Analytics reported the national office building vacancy rate reached 19.2% in Q3 2023, which is approaching a historic peak of 19.3%. What is contributing to that high rate?
Obviously, COVID had a huge impact on occupancy rates of both retail and office. With regard to office, specifically, I attribute a good chunk of it to the fact that although there are probably just as many office tenants out there now as there were pre-COVID, those tenants have realized that not everybody has to work their full 40-hour week within an office environment.

A lot of these, not necessarily national tenants, but these kind of medium to large tenants that were sitting on 10,000, 12,000, 13,000 square feet offices pre-COVID, they realize that a good chunk of their more administrative workforce could potentially work from home either partially or completely.

So, they went into scenarios where instead of having that 10,000-square-foot office space, they’re letting their leases expire on those large spaces like that and are relocating into spaces that are half, if not less, than the size they were originally occupying.

Is there something that needs to happen to lower the vacancy rate?
I think that we’re in a new world now where the market is just going to have to absorb what it can.

I’ve seen specifically in this area large office buildings that are sitting 50% or more vacant because they just can’t find the office tenants that need the space. The easy button is to find new uses for those spaces.

I hate for self-storage to come up because I definitely think that’s oversaturated in this market. Renovating old office buildings into residential apartments – that’s a huge pivot for a lot of these office buildings.

That’s not an easy task; that’s not a cheap task. But when you take into consideration that you have a 50,000-square-foot office building that you can’t get leased, you have to do what you’ve got to do to get bodies in the building. Residential is definitely a solution to that.

How would you describe the current climate of the industry?
There’s multiple facets and factors that go into that. There are costs such as high interest rates and hard costs of construction.

There’s the political factor with regards to neighborhoods wanting to protect their neighborhoods and either support or oppose scaled developments, whether that’s low density, high density, medium density, mixed use, anything like that. There’s obviously a factor of who is actually going to do these.

There is a whole generation of developers here in town that they did their thing, and it’s kind of up to the next generation to step up to the plate and do it their way and figure out what their niche and their legacy within the area is actually going to be, and working with people like the city, working with the Urban Land Institute – we have a new subchapter that’s being created here in southwest Missouri to guide new development in this area.