Home News Office Owners Already Reeling From Remote Work Now Face Recession Risk in 2023

Office Owners Already Reeling From Remote Work Now Face Recession Risk in 2023

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Office building owners stumbled when their holdings fell below most other types of commercial real estate by 2022. It looks like things could get worse in 2023.

Landlords have been coveting employees back to office building in greater numbers. But national rates of return are slowly rising. It has flattened out at about half its pre-pandemic level over the past three months.

now, possibility of recession has further dimmed the outlook for 2023. After recovering in 2021, it fell to 44% in 2022 from 2018 and 2019, according to VTS, a company that operates a data platform that tracks tenant demand.

Ryan Masiello, chief strategy officer and co-founder of VTS, said the company is reducing office space as it is in “cost-cutting mode.” “Everybody is starting to prepare for 2023, which is going to be pretty tough.”

That prospect could make it difficult for building owners to meet their mortgage obligations. rising interest rates. A potential predicament could ripple through the financial system. About $1.2 trillion of debt was backed by office buildings at the end of the second quarter, according to data firm Trepp Inc.

Office real estate investment trust stock total returns, including dividends, have fallen an average of 45% since February 2020, compared with about 5% for the equity real estate investment trust index, according to analyst Dylan Verzinski. Falling. Partnership with Green Street, a real estate analysis company.

“The office is the worst performer [real-estate investment trust] This sector has been very important since the pandemic began,” he said.

Office leases tend to last 10 to 15 years, so the office industry didn’t take a hit early in the pandemic. Although the building was largely empty in 2020, most tenants continued to pay rent.

However, cash flow decreased as leases expired and corporate tenants negotiated lower rents and reduced space. Office vacancy rates rose from 9.2% at the end of 2019 to 12.3% at the end of September, according to the company.

coster group Ltd,

We track 54 major markets in the US.

About 211.8 million square feet of subleased space is currently on the market, compared with 108.8 million square feet at the end of 2019, according to the data firm. According to CoStar, the amount of subleased space available today is the highest ever recorded in any major office market, including during the 2008 financial crisis.

Some of the drag on the office sector comes from new hybrid and remote workplace strategies. Many of these plans employee visits office In the middle of the week, we work remotely on Mondays and Fridays.

In the 10 major metropolitan areas Kastle Systems monitors, the average weekly return-to-work rate has plateaued at just under 50% since September. However, in the first week of December, there was a 23.3% difference between the highest and lowest days of the week compared to the 9% difference in the last week of January.

Even in cities where politicians are urging workers to return to the office, some local officials may be grappling with the new reality of remote work habits. In New York, for example, the Metropolitan Transportation Authority announced in her December that it would begin cutting subway service on Mondays and Fridays, his two least popular days to get to the office.

It’s not all bad news.companies such as

Salesforce Ltd,

snap Ltd.


drop box Ltd.

We used to tell employees that they could always work remotely, but now we are asking them to return to the office for a few days or increase their use of office training, meetings and other events. And the recent past suggests that some companies are taking advantage of the beginning of the year to bring more employees back into the office.

“The two biggest calendar events since the pandemic when there was a step up [in return to office] Kastle Chairman Mark Ein said:

Ain predicted that now that the new year has begun there will be another step and the new national average will level off again in the 55% to 60% range. “That will be the next period of stability,” he said.

But despite a gradual increase in people returning to the office, economic-concerned companies are cutting jobs. Much of the subleasing space on the market comes from big technology companies such as:

meta platform Ltd.


lift Ltd.


Workforce reductions have begun in the financial sector.

goldman sachs

plans to lay off thousands of employees, and Morgan Stanley is cutting about 2% of its global workforce.

“Continued news about job cuts and recession is likely to create further headwinds for the office sector,” said Mr. Verzinski of Green Street.

Write a letter to Peter Grant at [email protected]

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