According to a recent report from MetLife Investment Management, the short-term decline in demand for offices is unlikely to continue until the 1920s.
In fact, the cities with the declining demand for office space – including San Francisco, Washington and San Jose – may attract the largest demand in the next decade, providing investors with a “unique shopping opportunity,” the report said.
The report identifies pandemic-related trends that have led to a decline in demand for office space. Public transport is one factor: Until next year, when a coronavirus vaccine could be widely distributed, MetLife argues that cities with workers who rely on public transport may reduce their office rent. In New York, for example, the number of passengers is public transport a decrease of 70 percent a year ago (although studies have found it poses low risk for Covid-19) and only 13 percent of workers they returned to the office.
Offices in large automotive cities such as Los Angeles, Miami and Dallas may improve better in the short term and there may be more demand for offices in suburban markets until the vaccine is widely distributed. But MetLife says the trend is likely to reverse in the next decade and companies will return to it central business district because they can use larger and usually more elite talent groups.
Markets with a large proportion of high-income workers aged 35 to 54 – what MetLife calls a cohort of “middle management” – may also see a decline in demand for offices in the short term. “[T]”Most junior and senior employees are less likely to work remotely and are also less likely to accept desk-sharing arrangements that would allow companies to reduce office space,” the report said. Employees earning north of $ 100,000 work remotely more than less paid workers, according to the report.
MetLife also expects demand for offices to fall less in cities where financial professionals make up a significant portion of the workforce. Several big banks announced extended work plans from home and those who work in finance are more easily able to work remotely than those who work in other administrative professions. Nevertheless, according to MetLife research, they decided to work from home less often, which could help support a healthier demand for office space.
Last month, Fitch Ratings issued a report stating that the rise of teleworking and uncertainty about the future of the US economy could damage cash flow for trust funds for property management. The Fitch report predicts that office landlords’ operating income will fall next year before rebounding in 2022 and 2023.
But the report said that Pfizer’s coronavirus vaccine was more than 90 percent effective injected life earlier this month to some REIT offices. The Empire State Realty Trust, which owns the Empire State Building, saw its stock increase more than 37 percent on the day Pfizer announced its vaccination. Since then, Moderna and AstraZeneca have also reported promising results from studies with their own vaccines.