Conversation with Rob Nielsen, Jones Lang LaSalle Brokerage, Inc.

Matt sits down with Rob Nielsen, Executive Vice President at Jones Lang LaSalle Brokerage, Inc., and a seasoned leader in tenant representation with over 20 years of experience in commercial real estate.

In this episode, we explore how today’s shifting office market — from rising vacancies to changing tenant expectations — is reshaping how companies think about space, value, and the future of work.

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Transcript

00;00;03;25 - 00;00;34;04

Matt Watson

Welcome to Transcending Workspace, where we talk with leaders of organizations managing the greatest rate of change in human history. I'm Matt Watson, VP of development with Apex Facility Resources, an integrated services company that delivers and manages workspace change for clients of all sizes. We hope you enjoyed this conversation. Today's guest is someone who has spent over 20 years in the trenches of commercial real estate, helping companies navigate some of the most complex decisions they'll ever make.

00;00;34;06 - 00;01;01;23

Matt Watson

Where to work. How much space to commit to and negotiate the best possible deal. Rob Nielsen is an executive vice president at JLL, one of the leading commercial real estate firms where he specializes in tenant representation for the office users in the Pacific Northwest. Whether a company is renewing a lease, expanding into new markets, or relocating entirely, Rob has been the guy in the room making sure tenants come out ahead.

00;01;01;25 - 00;01;22;25

Matt Watson

And what makes Rob a little different? He's also a published author. He co-wrote leading with Humility. His research on the topic of humility and leadership has been cited in over 700 peer reviewed journals and covered by outlets like Fast Company and Psychology Today. So he's not just a dealmaker. He's a thinker. Welcome, Rob.

00;01;22;28 - 00;01;24;15

Rob Nielsen 

Thanks, Matt. It's good to see you.

00;01;24;18 - 00;01;28;02

Matt Watson

Good to see you, too. How did you get into real estate?

00;01;28;04 - 00;01;52;28

Rob Nielsen 

Oh, well, the short version of the real estate background for me was I had no experience in this matter. So, you know, single parent household mom was working for King County here in Seattle, and I didn't know anything. I mean, I saw this office buildings downtown and didn't think much of them. But when I was in college, Seattle, you I was living with my brother and he said, hey, you got to get a job.

00;01;52;28 - 00;02;04;10

Rob Nielsen

I love you, little bro, but you have to do something. And so there I was, searching Craigslist, and there was this ad for working with a real estate developer, and Craigslist was only slightly more legitimate back in those days.

00;02;04;11 - 00;02;04;21

Matt Watson

Yeah.

00;02;04;24 - 00;02;26;10

Rob Nielsen

Big question mark. It ended up being a legit job, and I was able to be hired for a developer who had developed 6,000,000ft² of retail power centers. And so think of Bed Bath and Beyond next to Best Buy next to Home Depot, that type of product. And he'd sold most of it a couple of years before I joined him to a REIT, a real estate investment trust.

00;02;26;10 - 00;02;47;20

Rob Nielsen

But he still had a couple hundred thousand square feet, and he wanted somebody who was going to help him do just about, you know, all sorts of real estate, administrative assistant type work. And it was a tremendous opportunity for me. And his name was Dr. Nick Vitalakis. And that was how I first started getting going. And after I graduated, I said, you know, I'd love to do it with Dr.Nick.

00;02;47;20 - 00;03;10;24

Rob Nielsen

Does this development work? But I'm going to need to set a foundation and then got into brokerage from there. And so started working for a company that was no longer in existence, but it was called Grub and Ellis was there for a year with the senior office to the rent broker there. And we went over to the Staubach Company, which was a fantastic boutique tenant rep company, which then was acquired by JLL.

00;03;10;24 - 00;03;13;11

Rob Nielsen

And I've been with JLL ever since.

00;03;13;13 - 00;03;19;12

Matt Watson

Yeah. So you got kind of acquired into JLL then ultimately you have not changed in 20 years.

00;03;19;13 - 00;03;39;18

Rob Nielsen

It's a pretty consistent. Yeah. JLL was different back then. It was much more consulting focused. And when they bought the Staubach company, which was, I think, the preeminent tenant rep firm at the time, which is 2008. Yeah, that was really when that culture changed dramatically in a great way to be more transaction and deal focused.

00;03;39;21 - 00;03;43;26

Matt Watson

And the specific real estate partner deals as well, brought a bunch of hitters in there. Yep.

00;03;43;28 - 00;03;51;24

Rob Nielsen

That's the history of Seattle. Yeah. It's you got a bunch of smaller boutique firms in this market. I was fortunate to have acquired a number of them.

00;03;51;27 - 00;04;17;22

Matt Watson

And you have it sat in that office and worked with some serious hitters, I know. You know, we're at the center of the core of the universe for cloud computing and, online retail and some of your guys have had their fingers in all those pies. So it's true. But even despite, you know, what also has kind of hurt our market, that was the benefit to our market years ago, which is all this tech increasingly took over the commercial real estate.

00;04;17;23 - 00;04;30;05

Matt Watson

JLL class is still 12th in the country for output globally or actually output globally, not in the country, but globally, which says something because it's really a tough market in Seattle right now.

00;04;30;10 - 00;04;46;18

Rob Nielsen

Yeah, it really is. I mean, working in a tech powerhouse that is mostly great. Yeah, not just good, but mostly great. I mean, the opportunities that are here that don't avail themselves in so many other markets is really incredible.

00;04;46;21 - 00;05;08;08

Matt Watson

Yeah. And it's also kind of if we start looking at the market, the office market in the US vacancy nationally is between 70 and 20%. By the way, ran into this amazing quote from the guy who runs Yardi. Covid is to office as e-commerce is to retail, which means hey, Covid took the life kind of out of commercial real estate.

00;05;08;15 - 00;05;10;02

Matt Watson

Would you agree with that comment?

00;05;10;04 - 00;05;34;13

Rob Nielsen

I don't think it took the life out of commercial real estate, but it definitely level. Said it was thinking of a boxing metaphor there. If somebody get knocked down. Yeah, in terms of that, Covid had a huge impact. But it really is impacted different tenants and different landlords pretty differently. And the big thing here is there is a huge difference between trophy or class A product.

00;05;34;14 - 00;05;36;13

Rob Nielsen

Yeah. And basically everything else.

00;05;36;17 - 00;05;36;26

Matt Watson

Yeah.

00;05;36;29 - 00;06;09;00

Rob Nielsen

And for years for the majority of my career you had really distinct categories of office space and you would see different tenants be attracted to those for different reasons. And that's much less so the case now, right, where the focus is much more on highly amenities, well-located A-plus trophy buildings, which makes it incredibly difficult for your B class building that was in Belltown, or pick your submarket that just had a conference room, kind of.

00;06;09;00 - 00;06;12;09

Rob Nielsen

Yeah. And it's trying to figure out what it's going to do going forward.

00;06;12;11 - 00;06;22;01

Matt Watson

How much communication do you get for other JLL brokers nationally, and kind of what is the sentiment or disposition of your fellow brokers throughout the country?

00;06;22;03 - 00;06;49;08

Rob Nielsen

But what I can tell you is that different markets are extremely different, right? Dallas is very different than Saint Louis is different than Austin is different than Seattle. But the theme holds, which is there is the trophy product and everything else when it comes to these markets. And that's what we're seeing in any of these major metros. And so when you talk to colleagues of mine in different cities, there's, you know, there's not this big return to office type of thing that's kind of run its course.

00;06;49;15 - 00;07;11;19

Rob Nielsen

But there is a big question over what are we going to do with the inventory that nobody wants to be in? And it's is about as pronounced in Seattle as it is in any market. I mean, with our vacancy rates being what they are and the challenges that we are going to have from a headwind standpoint with the impacts of AI.

00;07;11;25 - 00;07;18;05

Rob Nielsen

Yeah, for example, when it comes to higher vacancy, I think you got to look at that and go, what do you do with all this product?

00;07;18;08 - 00;07;45;25

Matt Watson

Well, I guess in Seattle, from my research, we're at the high end or at the highest end of a vacancy at around 25%. LA's a little bit behind us at 14%. Not surprisingly, Miami and Manhattan had the lowest national vacancy rates, which I think is interesting. The positive news is net absorption was positive in the second half of 2025, so hopefully it'll continue that way.

00;07;45;27 - 00;08;10;05

Matt Watson

And Marcus and Millichap forecast, you know, vacancy right around 16% by the end of 2026. So it's coming down. I think the other aspect and we'll get into this as well, is they estimate 213 billion coming due. But these are leases and financing on the commercial office buildings coming due by the end of 2026, a quarter of a trillion dollars.

00;08;10;08 - 00;08;17;16

Matt Watson

That's I think, a really interesting condition for both banks and owners.

00;08;17;18 - 00;08;33;07

Rob Nielsen

Yeah. So let's put some context around that because it is a really interesting position. So just first I think it's really helpful. And this is what I do with clients and introductory types of meetings or market overviews. Is this level set on how big this market is and what this looks like, and kind of the implications when it comes to vacancy.

00;08;33;15 - 00;08;57;07

Rob Nielsen

So if we've got 130,000,000ft² of inventory in the entire Puget Sound from an office standpoint, the way I like to describe it is, you know, we kind of cut it in half, which is the broker math way. It's not the perfect way, but you cut it in half. You got about 67,000,000ft² of space in downtown Seattle. So that is everything from Ballard through the CBD through South Seattle.

00;08;57;07 - 00;09;13;05

Rob Nielsen

So that's all in this kind of bigger market called, downtown Seattle for us. And then in the CBD itself, the central business district, it's about half of that. It's about 29,000,000ft². So it kind of cuts in half. Not not perfectly, but about that.

00;09;13;05 - 00;09;14;07

Matt Watson

Right.

00;09;14;09 - 00;09;24;07

Rob Nielsen

You're right. It's a very high vacancy rate right now. It's 38.9% in the CBD. It's about 30% in all of downtown Seattle.

00;09;24;13 - 00;09;26;29

Matt Watson

Pretty much the highest we've ever seen in our careers.

00;09;27;01 - 00;09;50;00

Rob Nielsen

For sure. No doubt. It's it's incredible. I mean, it's breathtaking to think that we're talking about nearly a 40% vacancy in our largest concentration of office space, which is the CBD, right? That's where the majority of this office buildings are. So when you have 30% vacancy for all of downtown, that's about 20,000,000ft² of office that is just vacant right now.

00;09;50;02 - 00;10;01;26

Rob Nielsen

And we distinguish that between available. So available would be even higher. It's a meaningfully higher number because that space it's not necessarily vacant in quotes but is in fact actually available.

00;10;01;29 - 00;10;02;14

Matt Watson

Right.

00;10;02;16 - 00;10;27;12

Rob Nielsen

So it gets even higher when you look at it that way. So for some context here, if you've got 20,000,000ft² of office space, what is the likelihood or the prognosis of that getting leased up? In a great year in Seattle, you would have 1,000,000ft² of net absorption, which means you'd start the year, you'd be 1,000,000ft² of higher engagement occupancy levels than you were the year before.

00;10;27;15 - 00;10;40;02

Matt Watson

And weren’t we seeing about 3,000,000ft out in the market looking and or leases getting ready to renewed or tenants ready to move. Wasn't that that kind of the average activity level?

00;10;40;04 - 00;10;53;02

Rob Nielsen

It's probably about that. I don't usually when I'm talking about it with clients, I usually break it down a little bit, kind of tighter just for some perspective. So I just look at the 100,000 square foot plus tenants in the market, right? And right now there's about a dozen of those.

00;10;53;08 - 00;10;53;18

Matt Watson

Right.

00;10;53;25 - 00;11;02;07

Rob Nielsen

And if we average those to 200,000ft², well, you know, the math is fairly simple. That's two point 4,000,000ft² of space.

00;11;02;07 - 00;11;02;28

Matt Watson

Got it.

00;11;03;01 - 00;11;27;09

Rob Nielsen

So even if you took all of the largest tenants and automat and filled them directly into space, you'd still have. You're talking about 17 plus million square feet of vacancy. And then if you went to the next tranche down, there's probably about 40 tenants right now that are active, that are over 20,000, between 20,000 and 100ft² and say, that's another 2,000,000ft² of total vacancy.

00;11;27;13 - 00;11;35;03

Rob Nielsen

You’re still 15 plus million square feet away from any sort of fully occupied or stabilized market.

00;11;35;11 - 00;12;00;27

Matt Watson

Yeah, brutal. What caught my attention the other day was you put out a quick note to your clients, and I'm on your client list that noted that negotiating leases has changed, and many of the tenants are struggling with the financial conditions of owners. Let's talk a little bit about the debt in our market. You see the debt crashing in on different ownerships.

00;12;00;27 - 00;12;06;19

Matt Watson

Do we see a lot more chips falling on that? You know, dominoes coming down on ownership?

00;12;06;19 - 00;12;27;17

Rob Nielsen

Yes. Yeah. Yes. Is the short answer. Yeah. It's really, really tough. You know it's really tough from an ownership situation to figure out how to make sense of this and all but the most highly occupied and most attractive buildings and even those are some of the toughest. But, you know, let's let's talk through a hypothetical example here. So there's some context.

00;12;27;17 - 00;12;34;18

Rob Nielsen

So let's just say a building in 2018, Matt and Rob bought a building that was worth 100 million bucks.

00;12;34;20 - 00;12;35;16

Matt Watson

Right.

00;12;35;18 - 00;12;58;04

Rob Nielsen

And we used 60% equity, had 59.5 million of that, and I contributed 500,000 of that equity. But we did it together. Okay. And, then we have a loan for about 40 million. Yeah. Right. So there's a loan of 40 million bucks and there's equity investment of 60 million, which is probably from, you know, a lot of equity partners or whatnot.

00;12;58;11 - 00;12;59;03

Matt Watson

Yeah.

00;12;59;06 - 00;13;21;15

Rob Nielsen

Well, today, let's just say that building is now worth 25 million. And we can talk about why it's worth so much less now, but let's just say it's worth for the sake of the exercise, 25 million. Now, let's just say that the landlord us, we're trying to figure out what we're going to do now because the loan is coming due.

00;13;21;15 - 00;13;46;08

Rob Nielsen 

It was an interest only loan. So we've still got to have 40% down on a building like that. Well, that means we're going to have to ante up an additional $30 million to get to make the bank whole, because the bank is saying, look, I'm not going to put more than 10 million bucks into this, am I? 40% level on the 25?

00;13;46;10 - 00;14;13;01

Rob Nielsen

So we are faced with the decision of, do we now take our $60 million that we already put in and add another $30 million into that? So we're now we would be all in hypothetically for $90 million on a building that is worth $25 million. Yeah. And, you know, you have to look at that from a landlord standpoint and go, well, what landlord is going to do that?

00;14;13;03 - 00;14;30;23

Rob Nielsen

Like, what's the bet on the future there? And so what ends up happening to these buildings? There's lots of scenarios that can happen. But you know, the most likely one is all of our equity kind of gets wiped out. We go here, landlord, you can just take it. Don't come after us. Right. And then the lender goes, okay, well, we're going to sell this.

00;14;30;23 - 00;14;33;06

Rob Nielsen

For what? We can sell this for.

00;14;33;08 - 00;14;55;00

Matt Watson

Well, and that's a loser for both, right. That's still loser for the bank. Yeah. $40 million loss for the bank I you know, I know the banks want to protect themselves from large reported losses. And I know there's been a lot of conversation in the community, banking community around who's vulnerable and susceptible to these large commercial real estate losses.

00;14;55;02 - 00;14;58;09

Matt Watson

But ultimately, it's a loss for both.

00;14;58;12 - 00;14;59;07

Rob Nielsen

Loss for everybody.

00;14;59;07 - 00;15;04;01

Matt Watson

Yeah, yeah, it's a loss for everything. And also a taxation loss for the city as well.

00;15;04;04 - 00;15;06;01

Rob Nielsen

Big tax big tax loss. Yep.

00;15;06;03 - 00;15;23;11

Matt Watson

Yeah. And so services that depend which were over 50% of all city taxes were coming out of commercial real estate at one point. You know they're going to have to start looking elsewhere for taxes. And we know where that's going to be. It's going to be residential and other. And who's going to drive a lot of people out of the market.

00;15;23;14 - 00;15;37;02

Matt Watson

So do you see people negotiating with their banker to to try to come to some like reasonable an understanding of reset. And we're all losing together, but we're going to try to push this thing through. What other options are there?

00;15;37;05 - 00;16;04;00

Rob Nielsen

What would I see on the tenant rep side. And I don't get to be in those rooms with the lender and the owner going back and forth. But what I see on the tenant representation side is a much more challenging negotiation, not because the ownership group is trying to undertake a knees and elbows approach to negotiating, but because there's just so much uncertainty in terms of what they can actually do.

00;16;04;02 - 00;16;26;05

Rob Nielsen

Unless your building is in really great shape. Basically a lot of these terms have to get approved by the lender, and then the capital has to still come forth, because the reality is that there are a handful of landlords that can transact in Seattle that are willing to offer pretty incredible concessions to make it worth the while for these tenants.

00;16;26;07 - 00;16;54;23

Rob Nielsen

And so the owners that are in tough positions already, it's exacerbated by the fact that they have to then compete and go, well, we really want this tenant and it's going to be really helpful for us, but we have to offer this level of TI allowance. This amount of free rent, these other types of economic or non-economic concessions, and then getting the lender on board with that, which really slows things down because the lender is trying to probably work through a number of these in a number of different markets.

00;16;54;27 - 00;17;17;29

Rob Nielsen

Right. They're probably already going, are we potentially throwing good money after bad? And they're probably looking at and going, do we have the capital to actually be able to do this deal in hopes that we can stabilize the particular asset? We can get more tenants at similar economic terms and conditions, stabilize the building enough so that we can sell it at a reasonable capitalization rate is tough.

00;17;17;29 - 00;17;40;19

Rob Nielsen

So that's harder for us. So that's really slowing things down. Whereas in 2019 it was here's what else is available. Here are the concessions that we can provide. Let's compete these two off of each other. You have to now really step back and go. What's the time impact going to be if this particular building can't transact or says they can but aren't able to, for example.

00;17;40;19 - 00;17;41;02

Matt Watson

Right.

00;17;41;09 - 00;18;09;04

Matt Watson

Well, I think what's also very interesting is it in a weird way should be a tenants market, but in an odd way, maybe it still isn't because there's fewer number of Class-A buildings that are actually transacting, doing reasonable transactional deals with TI allowances, where the B's and C's don't have the banking backup to do the TI allowances and are unstable and actually getting the deals done and taking longer.

00;18;09;04 - 00;18;18;00

Matt Watson

So it almost creates an opportunity where the tenants really don't see it. I mean, I don't know what our lease rates in Seattle and how they've been impacted by this.

00;18;18;02 - 00;18;48;27

Rob Nielsen

Well, let's just talk about your first point, which is, yeah, in the most desirable product, it's the most constrained and the tightest in the landlords are offering the lowest relative concessions for that product. Do you think about our market in particular in the Seattle side, it's high rise west facing view space is the most attractive. So even in an office building, if you've got 1,000,000 square foot office building in downtown Seattle, you start talking about floors 30 and up.

00;18;48;29 - 00;18;58;18

Rob Nielsen

It's probably going to command a bit of a premium, but you get down into the sixth for the seventh floor, there's probably still a good amount of vacancy even within that building. 

00;18;58;21 - 00;19;00;06

Matt Watson

Wow. Even within the class A building?

00;19;00;09 - 00;19;03;17

Rob Nielsen

Even when you're in the class A building that's working through. Yeah.

00;19;03;19 - 00;19;07;11

Matt Watson

So it's even more select. It's more view space west facing.

00;19;07;18 - 00;19;32;16

Rob Nielsen

But your point is really well taken and spot on in that it's a tight market in the trophy buildings. And so we look at these numbers and we talk about 40% vacancy in the CBD. Well the majority of that vacancy is still in these B class buildings that really most groups don't want to be in. And so then you've kind of got a situation, let's just say we work through that scenario where the building does get sold.

00;19;32;19 - 00;19;55;10

Rob Nielsen

You know, there has to be a determination by the new ownership group. Are they going to buy it for the land value and try to redevelop it into something that's higher and better use, or are they going to take the approach of saying, listen, we've been able to reset our basis in this building down to $0.25, $0.20 on the dollar.

00;19;55;12 - 00;20;13;14

Rob Nielsen

We're going to try to do transactions at this level and see if we can compete, because there are groups out there that are going to go. This is an amazing deal. It's a decent enough building. Sure, it doesn't have a locker room that feels like the Four Seasons and a fitness center with all the new techno gym equipment, but I'm going to make this work just fine.

00;20;13;17 - 00;20;26;02

Matt Watson

Yeah. Interesting. Well, and you know that subject of resource reuse, you know, you were advocating in your article that you wrote was in some cases, it just has to be grounded out and start over.

00;20;26;08 - 00;20;49;12

Rob Nielsen

Oh yeah. This is the redevelopment. So there is lots of conversation. And you know, developers really know this better than a tenant rep broker does. But I love early on in Covid when I was walking outside with an owner owner asset manager who was very involved in Seattle, and he said, so Rob and use different language, he said, so I'm going to take crappy office buildings and turn them into crappy apartment buildings.

00;20;49;15 - 00;21;08;11

Rob Nielsen

Yeah. And the point that he was making was, you know, some of these buildings are pretty challenged, and it's just to save all the construction work that's going to go into it. If you've got a ten story building or 15 story small office building that could theoretically be converted, but it's in the shadow of three other high rises, and it has no natural light.

00;21;08;11 - 00;21;26;17

Rob Nielsen

And it's 30ft away over an alley from another office building. Is that really something that people are going to want to say? You know what, this is where I want my apartment in the shadow of this office building all day. Yeah. And I think if you get some population growth, I mean, in New York, they'd say, yes, but I don't think we have that, at least not yet here in Seattle.

00;21;26;17 - 00;21;53;12

Rob Nielsen

But for sure, it's it's hard. And the other piece about the conversions in our market is there's not dozens and dozens and dozens of really small office buildings. I mean, most of our product was built in the 70s and 80s, in the 90s, and there's some great legacy buildings down in Pioneer Square. But the majority of the product is in stuff that was, you know, think about the box the Space Needle came in, or the Washington Mutual development.

00;21;53;13 - 00;21;59;18

Rob Nielsen

I mean, that was really when so much of our product really came online. That product, it's just not usually convertible to apartments. Yeah.

00;21;59;18 - 00;22;27;17

Matt Watson

And it's it's so one dimensional nationally. I was reading that CBRE is tracking, you know, removals and conversions outpacing new construction for the first time. And they've been tracking this since, oh 88. So that's actually removals and conversions are outpacing new construction for commercial space. Currently office two apartments 90,300 units currently in development throughout the country, which I thought was pretty interesting.

00;22;27;20 - 00;22;58;19

Matt Watson

What I also find fascinating there is that smaller floor plate buildings perhaps buildings built in the 30s, before the 50s and 60s where everything got to be big box and large floor plates. Those smaller floor plates lend themselves to residential conversion. Easier, you know, and they're more interesting buildings. A lot of them are Art Deco. And that sort of research, I find also kind of fascinating because before they were kind of looked down upon when we were looking for office space and how to utilize the space we're in, design it for our clients and our market, which I thought was also interesting.

00;22;58;19 - 00;23;22;26

Matt Watson

I see the Gibraltar Tower, which is one of those probably built in the 60s, will sell for 2.8 million bucks, 41,000ft building sold for just under 3 million bucks. I think it was appraised at 10 million. But before that, I think it sold at 42 Base Camp for condo style artists loss, which I also think is interesting.

00;23;22;29 - 00;23;45;28

Rob Nielsen

Yeah, that is really interesting. And your point, though, it goes back to that example that we gave earlier and there's these examples seem crazy when you say, well, the building was sold last time for $750 a square foot. Now it's sold for $87 a square foot. Yeah. We really are seeing that. Like this economic cycle has reset on so many assets out here.

00;23;45;28 - 00;24;03;27

Rob Nielsen

But I mean, ultimately it's because there's not enough net operating income, there's not enough rent coming in. And we see where that is. And that's what tenants have to keep in mind as well. It's like you are the economic driver. You are the engine for these office buildings. And so we talk about with clients. Right. It's understanding like your value is not just the value of your rent.

00;24;04;00 - 00;24;27;07

Rob Nielsen

That rent gets capitalized, it gets underwritten. You have to basically multiply it out. And so your 10 million can be worth 100 million bucks to, a landlord in terms of total value out there. And so really understanding that and making sure to take advantage of it in the right way. But yeah, it's really, really tough for most these landlords who are going, oh, this building is worth a fraction of what it was worth when I bought it.

00;24;27;09 - 00;24;43;17

Matt Watson

Here's two questions for you. One, do you think that Back to Work has really run its course, or do you think there's more runway for people to return to work? And I know it's in our market pretty devastating. Other markets, there's more utilization and less vacancy. But what do you think?

00;24;43;19 - 00;25;14;11

Rob Nielsen

Well, I think it is very much so market. I mean, of course there's more room for more folks to come in to the office and be downtown. And you get into these factors of why is it so different in Seattle in particular, how do you get more folks down here? And I think there is some really valid kind of chicken or the egg types of things that are like less political in that, you know, we don't necessarily have enough housing downtown for people to kind of feel like it's a vibrant city.

00;25;14;13 - 00;25;41;10

Rob Nielsen

And at the same time, you have to make it incredibly safe for people to commute via bus. And so if you think about the structure of parking and office buildings in Seattle was about, on average, one stall for over 1000ft², least of space. Okay. And you know these numbers better than I would with your expertise, but we're going to have around at the very, very high end these days, 200ft² per person.

00;25;41;15 - 00;25;42;18

Matt Watson

5 to 1 ratio.

00;25;42;19 - 00;26;06;25

Rob Nielsen

5 to 1 ratio. So that means four of the people in this office space or parking in their building or there's not parking available in their building, or the majority of them are going to probably come via bus for a mass transit, in our case, low, some light rail. And so it has to be an experience that is reasonable given the climate of Seattle, and it has to feel safe.

00;26;06;29 - 00;26;23;06

Rob Nielsen

And so we got to get there. Everybody deserves to feel safe being able to come in to their commutes. Right. But it's like if you want to have a more vibrant downtown, we've got to have more people living down here, which would then result in more retail. And you've got to be able to safely get people in and out on a consistent basis.

00;26;23;08 - 00;26;43;05

Matt Watson

I also see another pressure, which is a lot of the startups in the tech community want shorter term, more flexible lease solutions. You see a lot of co-working environments are absorbing that in terms of, mitigating the short term lease. Yep, yep. And then they have their longer term lease and they arbitrage that over the lifecycle of their lease.

00;26;43;13 - 00;27;02;24

Matt Watson

Yep. How much pressure do you see that from that? I know that we have had landlords in our market designing space for 3 to 5 year leases rather than 5 to 10 year leases. And we've done a number of market ready furnished build outs for those spaces to get people into the space quicker and up and working faster.

00;27;02;26 - 00;27;05;08

Matt Watson

Do you see a lot of pressure from that still?

00;27;05;08 - 00;27;36;25

Rob Nielsen

Well, first, I think it's a really valid issue. I mean, it's a fundamental issue for my clients because landlords effectively ask us to take these long term commitments, and I haven't met any groups that can tell you their ten year plan with any sort of real certainty, right? I mean, we're asked to make these longer term commitments and go from 5 or 7 or 10 year leases, and usually it's maybe 3 or 4 years where there is some realistic projection around headcount growth range that has some parameters around it that are reasonable.

00;27;36;28 - 00;27;54;18

Rob Nielsen

But that's one of the fundamental things that are kind of broken that we work show that Covid showed a bit. These tenants are asked to make these long term commitments when there's really no clarity on the longer term, like what it's going to look like in five, 7 or 10 years. It's very, very rare for most groups. Some can do it.

00;27;54;22 - 00;28;24;05

Rob Nielsen

Some are pretty stabilized for a variety of reasons. But we ask, especially in the start ups, for those longer terms, it's not really reasonable. So the best thing that landlords have done at a much greater extent post-Covid is do spec build outs for anybody that's not familiar with that, who's listening? The idea is that the landlord takes a floor and probably demises it's a 20,000 square foot for plate and say they demise 2 or 3 spaces and they just build them out.

00;28;24;08 - 00;28;55;05

Rob Nielsen

So they're not necessarily perfect for any single occupant, but they're really, really good for a lot of groups that are out there. And if you are a five, six, 7000 square foot tenant that budget, you probably don't have revenue over $100 million in that type of scenario. And so to be able to go into a space without spending 2 million bucks on building out the space to just say, I'm going to just go in here and I'll maybe I'll change the carpet, or maybe I'll just kind of keep it as is.

00;28;55;05 - 00;29;12;16

Rob Nielsen

But this is what I'm going to use for the next four years. That's a really attractive scenario to help them bridge the gap and hopefully then be a floor or two floors, or have at least more of a vested interest in saying, you know what I do want? Like we've got a bunch, you know, we have 400 people now.

00;29;12;17 - 00;29;31;21

Rob Nielsen

We need to have a longer term commitment that we're not moving everybody every three years. Yeah. So spec spaces, spec suites are, fantastic. I think it's really helpful when landlords do them. I wish more landlords would do them. We've talked about some of the reasons why it's so challenging for landlords to say you had your $60 million, it's down 90 million.

00;29;31;21 - 00;29;34;15

Rob Nielsen

Why don't you put another couple million bucks and build it out of.

00;29;34;17 - 00;29;55;13

Matt Watson

Too, too, too difficult now. Okay.  So we've talked through all the challenges a lot of at least a lot of the challenges into this market that we both are facing. Let's talk about some of the interesting things that are happening. And one of the things I did a little research on was all the reuse and repurposing. And I got a list here, but I also found some interesting stuff.

00;29;55;13 - 00;30;19;08

Matt Watson

So residential is probably one of the top things, but we know that's classically difficult on a lot of the larger floor plate, 70s and 80s built buildings in our market, because they just won't support the infrastructure for residential. It's too expensive to convert them. Education. I think that's an interesting idea. One that would accommodate, well, for a large floor plate for education.

00;30;19;08 - 00;30;40;12

Matt Watson

Schools, colleges could go into these structures. We also have a couple buildings in Seattle which are already data centers, self-storage structures. We're seeing that in the smaller buildings, but we see a little of that. And I love self-storage. We have a facility up here where we live and we've developed and built that out. One other idea, which I thought was interesting is power plant.

00;30;40;14 - 00;31;06;09

Matt Watson

And there's actually a tech startup in Seattle called EEO that call themselves a virtual power plant. What they're doing is their technology redirects the utilization of every building to cut upwards of 35% power consumption for non-essential time periods, which is really interesting. When you look at these buildings, they're sucking power 24 seven. They are. And power is now the the currency.

00;31;06;09 - 00;31;34;12

Matt Watson

That's really valuable in our community with AI and everything else. And their technologies divert power back to the power grid when the building is in full use. My wife and I just traveled. We came back through Tokyo sitting in a beautiful hotel, and we look out over the view and we see, I mean massive numbers of buildings, commercial office buildings at night with lights on and the power that these things consume and nobody's in those buildings is tremendous.

00;31;34;12 - 00;31;51;06

Matt Watson

You know, you're starting to see some of the creativeness that's been out there, that's starting to put its focus on commercial real estate, and hopefully it'll start making a difference. I don't know, do you see any other new and different ways to look at these structures in the commercial real estate industry to try to make it work? I have not.

00;31;51;09 - 00;32;16;08

Rob Nielsen

Spent a bunch of time looking at the creative, different ways to do different approaches with conversions and redevelopments. You know, I think that part of it is where I've focused in on, in terms of kind of representation and what's available and whatnot. But, you know, I think there's probably great opportunity for folks that are out there that want to pursue it, at least in the Seattle market.

00;32;16;11 - 00;32;32;26

Rob Nielsen

There is so much inventory out here that we can have all sorts of creative solutions. And to get out of 20,000,000ft² of total space in downtown, that's just available right now is is a long road to hoe.

00;32;32;28 - 00;32;42;25

Matt Watson

Though. That number is so large in my head, dude. And you know, you and I have known each other a long time. I've been around this market for 40 years. I've never seen it over 17%. Let alone.

00;32;42;27 - 00;32;46;03

Rob Nielsen

Nothing. There's nothing never like it.

00;32;46;05 - 00;33;01;00

Matt Watson

Yeah, well, I appreciate the time you've shared today, Rob, I, I know you are a true night fighter. Do you see a lot of drop out of brokers in the community? In this market you're cut less than in half.

00;33;01;03 - 00;33;23;07

Rob Nielsen

Yeah. It's a it's a sturdy group. They get in there and it's a good you know it's a good work life balance. And you know the great thing about doing tenant representation work is you get to work with incredibly sharp people every single day executives, CEOs, CFOs, managing partners. And they have an incredibly strong expertise in their subject matter area.

00;33;23;10 - 00;33;38;00

Rob Nielsen

And then you get to come in and your subject matter area and be a tremendous resource for them. And so, yes, we've seen a bunch of folks give back space, but I think anybody that still is passionate about it and wants to do it and do great and brokerage in downtown Seattle.

00;33;38;02 - 00;33;50;09

Matt Watson

Well, we appreciate the time today and look forward to the market continuing its slow and gradual improvement. We look forward to working with you in the future, my friend.

00;33;50;12 - 00;34;06;00

Rob Nielsen

Hey, I enjoy it. The one thing, having listened to a handful of them and the company that you and your family built with Apex is has been a tremendous resource for so many of my clients over the years. And it's just kind of the easy button to say, oh, we need something like that. I bet you team can do it.

00;34;06;06 - 00;34;10;03

Rob Nielsen 

Thank you. Thanks for always more. Great resource and thanks for inviting me on, I enjoyed it.

00;34;10;05 - 00;34;21;13

Matt Watson

Thank you for tuning in to Transcending Workspace. If you'd like to hear more, please subscribe to our channel. Visit apexfacility.com. For more information about how we can help you build an adaptive workspace.