The rise in hybrid / remote work is negatively affecting the office sector of commercial real estate. Since the pandemic and the rise of hybrid work, office occupancy rates have reached all time lows while interest rates have soared to all time highs. In addition to the high interest rates, $1.5 trillion in commercial real estate loans are set to expire in the next 2 years.
It is evident that our society is not going to change our working style of a hybrid / remote system. The post covid higher interest rates are changing how companies operate, with some reporting up to 18% office vacancy rates. In todays society there is no motive to go in to the office with Friday's and Mondays having an immense production slowdown.
More than 95 million square feet of office space is currently unoccupied - the equivalent to 30 empire state buildings. Tenants already have and will continue to shrink their office footprint and landlords are coming to the realization that their buildings are plummeting in value.
The price of office buildings has decreased by up to 40% in some conditions and a lot of commercial real estate (CRE) professionals fear that this only marks the start of the trend. I will be looking forward to how the apartment sector will perform because most of these office spaces will most likely be converted in the near future.
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It is evident large firms will continue to shy away from big office complexes as a result of this new precedent of the hybrid work environment. Unfortunately, there are many employees that do not get as much done in the hybrid environment as there are typically more distractions.
This is interesting. I wonder how many of these office spaces could be reutilized as rented out office spaces. There seems to be an increasing trend of unused office spaces that are being rented out to companies or business people for a day, week, or month. WeWork is a new up and coming company that does this, and I wonder if they see this as a opportunity for themselves.
Do you think that the remote/hybrid setting varies from job to job or company to company? As some may require full time in the office.
What are your personal thoughts about remote working, even though it decreases the value of commercial real estate, does it increase other aspects of the economy?
How do you see the shift towards hybrid/remote work continuing to impact the commercial real estate sector, especially with high interest rates, expiring loans, and the significant decrease in office building values? Additionally, how do you think the transformation of unoccupied office spaces to apartments affect the performance of the apartment sector in the near future?
Its interesting how Covid is still impacting our work/life today but in a different aspect. While we were only in high-school during the pandemic, it was tough to have online classes and stay at home while trying to focus. Do you believe that the empty office spaces will try and reduce cost to bring back workers and companies into their spots? Or will it continue to get larger as more and more business are continuing to operate on an hybrid schedule?
I wonder if the remote balance will be maintained in the future. Who's to say what employers will demand when they get control of the labor market again, and labor bargaining power is low. I've seen first-hand investors pitch office-building investment plans, and try to say people will go back to working in the office when the job market evens out and firms get more bargaining power. Will definitely be something to look out for.
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