The Azucena Take: Is There a Future for Office Properties?
One of the hot-button issues in professional circles and the investment real estate market has been the concept of working from home. Employers want their staff in the office but employees want to work from home (either full-time or part-time). Given the current job market, employers can't exactly demand their staff come into the office. At the same time, many employers are making WFH a benefit of working for the company.
This has also brought a lot of uncertainty for investors who own office property. Its value has dropped and there is no telling if it will recover. Is the office property a failed venture or is there a future?
Why Work From Home?
When the pandemic hit in 2020, non-essential businesses had to close while companies adopted a work-from-home policy. By mid-2021, most of the economic restrictions had been lifted and numerous property types have seen a boom in revenue or interest.
Office properties have not seen this boom as WFH continues to be the norm. There are several factors that have made work from home appealing compared to the office. For employees, they include:
No long commute to the urban core.
Boost in their individual productivity.
Easy to maintain work-life balance.
Will They Return to the Office?
How likely will employers make their staff return to the office? It's unlikely anytime soon but there have been a few suggestions.
One of the most controversial takes has been a recession could change this dynamic. From an investment standpoint, hoping for a recession is really really dumb. The obvious is that it could hurt one's financial interests and holdings. Even if a recession were to happen it will not be anything like the 2008 Crash. At worst, it would be on par with the 1981 recession that saw unemployment rise by 2.6%.
Looking at it from a more realistic viewpoint, investors could see a rise in suburban offices. Unlike urban offices, suburban offices maintained momentum during the pandemic. Suburban offices are now leading the recovery as they have seen a drop in vacancy rates and a rise in value since 2021. Its location close to where people live has made them appealing to both investors and employers.
However; this should not mean you should go all out and invest in suburban offices. The future of office property overall is still unclear.
What it Means for Investors?
The current state of office properties is a great example of having nuance and why you should not put all your eggs in one basket. Is there a future for office properties? The question is hard to answer but the market forces and social norms are changing. For investors, it's best to position your holdings to either capitalize on these changes or diversify your holdings so as to not lose so much equity.
The Azucena Take provides an inside look into the investment real estate market using the research done and data collected by Marcus & Millichap