The Future of Office Real Estate: Challenges and Trends
Office assets have been a sure thing in commercial real estate for a long time and are considered a reliable source of revenue for owners and lenders. However, since the pandemic, the future of the office sector in commercial real estate is unclear.
While industrial assets saw the biggest increase in demand and production over the past few years, the office sector remains uncertain. Now that the COVID-19 national emergency is officially over it is time to return to the office. Yet, during the pandemic, companies and employees were forced to adjust workplace environments and work from home or remotely, and for many, this business model is more attractive and convenient than commuting to an office five days a week.
According to Jessica Morin, CBRE Americas Head of Office Research, “Employees have become accustomed to the flexibility and autonomy that hybrid work provides, and many associate it with improved sentiment toward work.” Employers struggle to increase office utilization and attendance in a competitive labor market.
In many instances, it comes down to creating an environment with upscale amenities and building technologies that attract workers back to the office. A smaller footprint with upgraded office space seems to be the direction the office sector is shifting to in the current marketplace.
Morin also believes, “Overall, the combination between smaller footprints and a flight to quality will leave the U.S. office market with a surplus of vacant and undesirable office inventory. Outdated office space will continue to weigh on the market until rents are reduced enough to entice tenants to absorb some of the space, or the buildings are demolished or converted to an alternative use.”
Another looming solution is converting office to residential, which could be a multipurpose solution for some markets struggling with affordable housing. Green Street’s March 6 Commercial Property Price Index report shows that office real estate values have dropped by 25% in the past 12 months. Several office-owning REITs, including Boston Properties and Vornado Realty Trust, were given negative rating outlooks by S&P Global Ratings.
According to the Bisnow article, Office Landlords To U.S. Government: Without Help, We’re Heading For A Financial Catastrophe, “For the first two years after the outbreak of the pandemic, so little was known about its long-term impact on the office market that lenders and borrowers alike were all too happy to reach extension deals and other short-term measures, hoping to wait out the tough times.
As a result, $270B in commercial real estate debt is scheduled to mature in 2023 — an all-time record, credit monitoring firm Trepp reports. Office buildings account for $80B, or around 30%, of this year’s maturities. The pandemic’s one-two punch of causing office demand to collapse and creating a mass maturity event has backed regional banks into a corner.”
Secure the Future of Your Office Assets with Saunders Seismic
The evolving office sector presents unique challenges, but proactive measures can help protect your investments. Regular building assessments ensure your properties remain structurally sound, while seismic retrofits provide added safety and resilience during renovations or repurposing projects.
At Saunders Seismic, we specialize in seismic retrofits and structural repairs tailored to your commercial real estate needs. With decades of experience, we help property owners navigate industry changes while safeguarding their assets.
Contact Saunders Seismic today to schedule an inspection or discuss how seismic retrofits can enhance the safety and value of your office assets. Together, we’ll ensure your properties are ready for the future.