HomeReal Estate NewsCommercialAnalysis: CRE office demand could drop 15%

Analysis: CRE office demand could drop 15%

Cedrik Lachance, Green Street’s Director of Research recently noted that the work-from-home trend could be one of commercial real estate’s most defining stories to come out of the COVID-19 pandemic, GlobeSt.com reports. Lachance noted in a recent blog post that where someone decides to work does not just impact their office, but also residential real estate, hotels and suburban shopping centers.

“All have different fundamentals based on decisions that people make,” he wrote.

The proposed “hybrid” workforce has given a lot of companies pause because they’re trying to manage environments that comprise employees that want to go back to the standard five days a week in the office, while others would like to work remotely forever. Green Street forecasts a 15% decrease in office demand compared to pre-COVID-19 trends because of this disconnect.

“It is not going to happen overnight, and you are going to see many disparities between markets and countries,” Lachance wrote. “Coastal markets in the US should suffer a bit more from work from home, whereas in markets that are more dynamic from an employment perspective, often in the south, you might not even notice that work from home is becoming a greater percentage of the pie.”

CRE prices have increased by 8% overal in July 2021, according to Green Street’s Commercial Property Price Index, GlobeStreet.com reports. Meanwhile, Lachance sees a 300-basis-point rebound across CRE sectors in terms of building occupancy. That type of bounce back would create 90% occupancy levels across the industry. In terms of rent, Lachance predicts levels mirroring 2019 by the end of the year.

Office CRE has suffered mightily during the pandemic, but other real estate sectors have thrived, relatively speaking. For example, manufactured homes and industrial have created the best combination of rent growth and occupancy gain expectations over the next five years, according to Lachance. He believes there will be a significant cash flow rebound in senior housing and lodging. Lachance also said that non-traditional sectors represent more than half of the real estate investment trust (REIT) industry’s value. The REIT structure offers investors an opportunity to participate in these sectors’ expansion.

“In fact, several other sectors should experience net operating income (NOI) growth in the four to five percent range for the next couple of years,” Lachance said. “This is a good era for real estate fundamentals, and we see that continuing.”

Joe Dyton can be reached at joed@fifthgenmedia.com.

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