The shadow of the pandemic on the US real estate market, and especially the one focused on office rentals, is not long; little by little it begins to adopt directly kilometric measurements. Three years after the declaration of the state of alarm in Spain and in a very specific scenario, which, beyond the legacy of COVID or its effects on teleworking, is marked by the attempt of many companies to reduce expenses, the level of occupation of branches begins to approach historical lows. And without giving signs of remission.
In times of crisis it is time to lighten expenses.
And, with teleworking rolled out thanks to the experience of the pandemic, office rentals do not seem like a bad option to put in the scissors.
Percentages not seen in decades. So just calculated it Axios based on data from Moody’s Analytics. The American media recently did the math to calculate the percentage of vacant offices in the 50 largest metropolitan areas in the country. The result: 18.8%. And with a clearly upward curve. The figure is close to the highs recorded three decades ago, when the market was rocked by the savings and loan crisis from the 80’s
And on the way to the total record. Analysts there are already believing that the trend will gain strength driven by changes in the labor market. In another recent report, the consultancy Cushman & Wakefield estimates that hybrid work will cause the number of empty offices in the US to exceed pre-pandemic levels by 55%. That, in terms of area, is equivalent to 1.1 billion square feet by 2030, about 102.2 million square meters.
By the end of the decade, there would thus be an extension comparable to the inventory of offices in the Washington metropolitan area inactive due to telecommuting and its different variations. Another bag of square meters, even larger, are directly considered as “normal or natural” vacancies. Cushman believes that a significant portion of US offices could require “significant investment” if they don’t want to become obsolete down the road.
And what are the reasons? Although it seems to have lost ground in recent months, telecommuting enjoyed a notable boom during the pandemic, also showing some practical advantages for companies. another key marked by Axios are the economic turmoil, which has already forced some Big Tech to cut their workforces or get rid of warehouses.
And although the leases of premises and offices are usually signed long-term, when it is time to take out the scissors and adjust expenses, rent is not a bad option. The occupancy level in the main urban centers of the United States was still the same as last month very inferior to that registered before the pandemic.
“Troubled Times”. in those terms Thomas LaSalvia expresses himself, from Moody’s Analytics: “We are not prepared to say that this is a precipice for the office sector, but I believe that we are entering some truly turbulent times right now.” It is no longer just about empty offices; it is that their owners see how the costs that support their pockets increase due to rising interest rates.
In February The Wall Street Journal warned of an increase in the number of large office owners defaulting on their loans. Specifically, he cited the giant Brookfield Asset Management and its large debt default on a pair of 52-story towers in Los Angeles. RXR would also be trying to restructure the default on a tower located in Manhattan.
If fewer offices are demanded… Why not rethink them? Why not find new uses for them? The idea is not that crazy and in fact it has already been put on the table in New York, where someone has already seen in obsolete office towers an opportunity to meet the high demand for housing.
The key: conversion. “Right now, I bet that all the big developers have a feasibility study on the residential conversion on the table,” explained Dan Shannonmanaging partner of the MdeAs Architects studio, to Financial Times: “I would seriously doubt that the next life of the Chrysler Building outside as an office building, at least not the upper (section).
And beyond the US? The US is not the only country in which office buildings have suffered the impact of teleworking. In August Bloomberg disclosed a CoStar study that concludes that the percentage of empty offices in London has shot up by more than 50% since the end of 2019, which directly affected its value, with a decrease of around 25%. To find a similar bag of available spaces, you had to go back, at least at that time, a decade and a half ago. JLL detected There was also a significant decline in the percentage of office rentals located in the Île-de-France, in the vicinity of Paris.
The case of Spain. Here the real estate sector nor did he remain oblivious to the trends, although published data in January by CBRE invite us to think that its final effect has been limited: according to their calculations, the office rental market in Madrid said goodbye to 2022 with more than 500,000 m2 leased, which is nearly 20% higher than the figure for 2021 and returns the sector to pre-pandemic data.
Cover image: CHUTTERSNAP (Unsplash)
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