Office real estate faces losses and changes, but not dead

The unprecedented shift of most companies to telecommuting has instantly crippled the office sector, but analysts are confident that it is not the end of office real estate.

The coronavirus pandemic had forced people around the globe to shift from what before was “normal.” Office real estate, for instance, is among the many sectors that went static as the result of a health crisis, based on reports.

Its future looks bleak as well as CEOs of massive companies including Jack Dorsey of Twitter has allowed their employees to continue working from home indefinitely.

Office sector may take two years to recover

In a recent Outlook from real estate and investment firm Coldwell Banker Richard Ellis (CBRE), office vacancy will continue to spiral down to a low of US$33.23 [AU$50.95] per square foot per year in the fourth quarter, after it sunk to $35.66 per square foot in the first quarter of 2020.

Office real estate to face losses and changes, but not dead

The average vacancy hit a 12.3% mark, and analysts expect it to increase as much as 14.9% by the first quarter of 2021.

On a positive note, office rent will then rally slowly to current levels after two years—or by the first quarter of 2022, to be exact.

The reports had raised concerns among estate owners and landlords as to how the office market will look like post-pandemic. Many are predicting it might be the end of the office setting as well.

Real estate is not dead

However, UBS analyst for real estate and lodging Jonathan Woloshin said that it is too early to say that the entire office sector is dead.

He explained that there are “numerous counterbalancing factors,” forcing and helping the industry to adapt and stabilize.

According to a report from investment firm UBS, here are some of the aspects that will help the office market to recover:

  • Companies would seek additional spaces—not less—to ensure the proper implementation of social distancing in the office
  • Offices may move to suburbs where most of their employees are residing
  • Newer buildings and environment-friendly spaces could see a surge in demand

Improvise, adapt, and overcome

On the one hand, Woloshin suggests that landlords would need to find and execute innovative ways as part of the recovery.

He explained that:

“The realities are that landlords, companies, and tenants alike will all be forced to improvise, adapt, and overcome several challenges in the post-COVID-19 world.”

Spencer Levy, CBRE’s senior economic adviser, also seconded the massive changes office real estate need to adapt the “new normal.”

According to Levy, more flex-working might rise. He also sees short-term advantages in moving to suburban, but people will still revert to urban core long-term.

A few more changes in the industry are social distancing, the use of face masks, and the integration of touchless technology.

CBRE surveyed 203 companies, and half of the respondents said that they are studying to implement the said measures.

Hot desking may also disappear, while flexible offices with private conference rooms and spaces should expect growth.

If all these measures are put into practice, it may be that office real estate will truly shift to a “new normal” once the pandemic is over.

Images courtesy of mapman/Shutterstock, 12019/Pixabay

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