Posted on 02/24/2023 5:28:56 AM PST by EBH
With return to pre-pandemic office attendance increasingly unlikely, how much distress is the sector facing this year?
Since the COVID-19 pandemic first took hold and lockdowns kept American office workers from their on-site desks, observers of the U.S. office real estate sector have been bracing for a surge of distressed properties.
Thankfully, while the office sector has been through its share of difficulties in the COVID era, this surge has thus far been averted. But with some of the factors holding back distress activity no longer applying, Yardi Matrix is projecting a pickup in distressed assets this year.
For one thing, while many office property owners have been crossing their fingers that in-office attendance would return to pre-pandemic norms, the prospect has become increasingly unlikely, Yardi reported. Remote and hybrid work have become established in several white-collar industries. And while several firms that have embraced such practices have remained steadfast tenants due to long lease terms for office space, the expiration of many of these leases likely mean that many of these companies will soon downsize their offices or eschew them altogether
That’s especially a concern in the tech realm, which had previously driven much of the leasing activity but is now in contraction due to an outsized entrenchment of remote-work policies. Areas where the office-working populace leans heavily tech-oriented, such as Seattle and the San Francisco Bay Area, bear watching.
Meanwhile, the pandemic-era trend of tenants trading square footage for quality has continued, emptying many older properties, especially those lacking in amenities, maintenance or location. Even marquee assets with questionable future profitability could be potential candidates for future distress. Consider, for example, Brookfield’s “strategic default” on $784 million in combined loans for a pair of downtown Los Angeles office towers. A report from Fortune placed the rationale behind Brookfield’s decision to default squarely on waning office demand and the impact of remote work, while Real Estate Capital USA noted that the move could lead to a rise of such strategic defaults moving forward.
Combine such elements with the already fraught lending environment and it’s easy to see a recipe for more distress in the near to medium term. There is, however, no need to prep for an “office apocalypse” just yet, according to Yardi. While the analytics company predicts an uptick in foreclosure frequency, it’s too early to say it will be a large wave,
“With demand for office space continuing to be soft, we expect that many of the distressed properties that are sold may be targeted for conversions into life sciences or multifamily, with some razed and entirely redeveloped,” Yardi’s report stated.
I think the pickup will be WFH workers renting office spaces locally. That is my plan. We have a local hotel that is rarely even close to being full. I think it is more of a hobby for the owner.
Day Office space is very popular here right now. You get all the office amenities, wifi, printers, coffee, some even a kitchen station etc. even someone to answer your calls. Just show up with your lap top.
It’s a fascinating development that I’ve been following quite closely. I’ve been reading that Chicago and NYC are suffering a knock-on effect. Empty offices, fewer lunch time crowds, more restaurants and bodegas close, fewer people WANT or can come back to the offices, less lunch time traffic, more crime, more businesses close, rinse, repeat. Chicago has “Pharmacy” deserts because flash mobs keep robbing them; Chase Bank in NYC has started closing ATM’s because people get mugged at the ATM’s.
I can’t quite feature how this plays out.
So commercial office space will become more plentiful and cheaper? I’m so distressed!
Those incessant memos to turn in TPS Reports would put anyone over the top when it comes to distress.
A few years ago, our then national sales manager made me an offer. I get to work from home and travel around a lot for my job. I’ve had many modifications on the same theme since then, but none have required my presence in the office.
I have to go there this afternoon to use a specialized piece of equipment but that’s a rarity.
All of my kids are in a similar situation. One works at NASA but is only on call to come in the control center one week a month. Another quit her publishing job because they wanted her to come back in. She got another one that’s
fully remote. One is a nanny so work from home is sort of a prerequisite.
The other takes his home with him wherever he goes. He’s a trucker.
Companies sucked up to their government overlords and shut down when they shouldn’t have. They made their beds now they will need to figure out how to continue with all the remote stuff.
American cities are living on past glory.
After a few decades of horror they will revert back to their original purpose.
Agriculture.
The university research park has it but it is very expensive. I can walk to this one
We have lots of empty office space downtown but I’m not sure of the condition.
Here is another one that has been around awhile.
You have to navigate all of the pronoun, trans, homo propaganda.....worry you didn't use the right pronoun....that you said an off the cuff remark someone would hear and be offended by.
No, sir.
The only positive to come out of the pandemic was WFH. I realize not every job can be in that category. But man....what a blessing it has been.
I’m going to have to visit a used office supply store, I bet they have a lot on clearance.
“Why would anyone with a rational mind want to return to the office environment?”
When you work from home, you are always at work. Remote Work is better outside the home. I miss the office networking. I dislike Zoom. Some people feel Zoom is a time for them to lecture. My wife is retired and it is hard to see me at home but not available. Plus I mutter.
Some may have that mindset....not me.
They are off to a good start, all the politicians are vegetables.
I had a customer in Mountain View, CA with 450 employees.
They now rent a shared office space, with 2 or 3 people showing up each day.
Everyone else is working from “wherever”
I could give many examples of companies who now work from wherever.
With all the empty buildings that have corporate logos on them empty, I wonder how the heck there is a rush hour...
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