A study by the National Bureau of Economic Research (opens in new tab) (NBER) examining the effects of the Covid-19 pandemic on our working environments has predicted what it calls an “office real estate apocalypse”.
The September 2022 paper found a significant 45% decline in office values during 2020, with a longer term fall of 39%. The NBER places the long run figure at an alarming $453 billion, however among the findings was a hint at how offices can protect themselves against impending doom.
The abstract reads: “Higher quality office buildings were somewhat buffered against these trends due to a flight to quality, while lower quality office buildings see much more dramatic swings.”
Should I rent an office?
That said, an article on the San Francisco Standard (opens in new tab) entitled “Turning Downtown Offices Into Housing Isn’t the Solution You Think It Is” suggests that repurposing old office buildings may not be such a savior after all. Not only is a building’s suitability for residential development a sticking point, but renovation costs remain high as the cost of living crisis continues.
As the pandemic was unravelling, an estimated 95% of physical offices were occupied, a figure that dropped to just 10% in March 2020. While many companies are now warning their employees of a return to office, as of September 2022, the figure had just crept up to around half of what it was pre-pandemic, at 47%.
The research suggests that higher quality offices, with more amenities, are performing best, with rents either maintaining or increasing. Meanwhile, less equipped office spaces are facing tougher challenges and are being faced with potentially having to repurpose.
However, the future remains uncertain. Almost two in three (62%) US office leases have not come up for renewal since the pandemic, and NBER’s researchers think that “rents may not have bottomed out yet.”
There have been mixed reactions to hybrid working routines across the globe, but in the face of challenging rental conditions, working from home may be about to experience yet another boom.