Office Owners Already Reeling From Remote Work Now Face Recession Risk in 2023
Owners of office buildings stumbled through 2022 when their holdings underperformed most every other type of commercial real estate. Things look poised to get worse in 2023.
Landlords have been longing for employees to head back to office buildings in greater numbers. But the national return rate has crept up slowly. For the past three months, it has plateaued at about half of what it was before the pandemic.
Now, a possible recession is making the outlook for 2023 even gloomier. New business searches for new office space, after rebounding in 2021, fell in 2022 to 44% of what they were in 2018 and 2019, according to VTS, a firm that operates a data platform that tracks tenant demand.
Pension Funds Are Selling Their Office Buildings
Major U.S. and Canadian pension funds are cutting back investments in office buildings, betting that prices will likely fall as the five-day office workweek becomes a thing of the past. This shift is part of a broader transition away from traditional real estate holdings in offices and shopping centers as the Covid-19 pandemic has accelerated the rise of e-commerce and remote work.
Office Index Plummeting as Recession Fears Grow
It’s already been a tough year for owners in the office market. An index, tracking shares of publicly traded office owners, has dropped 29 percent in the first two quarters of the year, the Wall Street Journal reported. That outpaced the 21 percent fall in the S&P 500 stock index.
New York City’s office market is improving every month, but what it will look like a year from now is anyone’s guess, Vornado Realty Trust’s management said Tuesday.
Vornado’s shares rose roughly 2 percent after the company reported first-quarter earnings and revenue that beat Wall Street consensus expectations. Funds from operations per share, a key REIT earnings metric, increased more than 20 percent year over year to $0.79 on an as-adjusted basis, beating the consensus estimate by 3 cents. Net operating income ticked up 3.1 percent.
WeWork’s Losses Narrow but Still Huge
WeWork’s quarterly losses narrowed throughout 2021, but the year’s total was a sobering reminder of the flex office company’s struggle to regain its former glory.
WeWork’s stock tumbled around 3 percent Friday, then rebounded, after the company reported a $4.4 billion net loss for the year. That’s up from losses of $3.1 billion in 2020 and $3.3 billion in 2019.
Manhattan investment sales top pre-pandemic levels in Q4 comeback
The city may be entering its third year under the looming shadow of Covid, but investment sales have snapped back to pre-pandemic levels.
Manhattan recorded 100 investment transactions totaling just over $6.2 billion in the fourth quarter of 2021, according to a report by Avison Young, the highest dollar volume and most deals recorded in a single quarter since 2018.
Flight to Quality Drove Gains in Manhattan Office Market
The Manhattan office market’s gains in the wake of the pandemic appear to be centered on a continued flight to quality.
CBRE Investment Management recently agreed to buy a portfolio of logistics properties from Ross Perot Jr.’s Hillwood Investment Properties, according to the Wall Street Journal. The properties involved in the deal are valued at $4.9 billion.
REITs Romped in 2021 as Property Values Soared
Investors who bet on real estate investment trusts at the beginning of 2021 are reaching for top-shelf champagne these days as they prepare to celebrate the new year.
Blackstone Nears Deal Valuing Manhattan Office Tower at $2.85 Billion
Blackstone Inc. is in advanced talks to acquire a 49% stake in a new Manhattan office tower in a deal that values the skyscraper at $2.85 billion, providing a shot of confidence for New York during tough times.