{"id":11426,"date":"2023-12-14T20:16:02","date_gmt":"2023-12-14T20:16:02","guid":{"rendered":"https:\/\/lendingsensibly.com\/news\/2-reits-to-win-in-the-office-sector\/"},"modified":"2023-12-14T20:16:03","modified_gmt":"2023-12-14T20:16:03","slug":"2-reits-to-win-in-the-office-sector","status":"publish","type":"post","link":"https:\/\/lendingsensibly.com\/?p=11426","title":{"rendered":"2 REITs To Win In The Office Sector"},"content":{"rendered":"
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Commercial real estate as an asset class has in general registered subpar results since early 2022, when the Fed changed its accommodative stance to a clearly restrictive position.<\/p>\n

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YCharts<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Yet, as we know, the commercial real estate sector itself is not homogenous. It consists of many subsectors, which to a large extent carry distinct risk and return characteristics.<\/span><\/p>\n

For example, there is a huge difference between data center and retail real estate, where the former has advanced by ~20%, while the latter decreased by ~11% on a YTD basis.<\/p>\n

A completely hammered office space – a couple of facts<\/h2>\n

In the case of the office segment, we are talking about the absolute worst performing element within the entire universe of different real estate subsectors.<\/p>\n

The main driver behind the struggling office sector is structurally lower demand for office space due to the work from home dynamics. This has, in turn, caused several consequences further down the business chain or, in other words, <\/span>a vicious cycle<\/strong> (e.g., lower demand leading to more vacant space, more vacant space creating pricing pressures, pricing pressures causing new investments to drop, declining prices and investment activity creating concerns among lenders, concerns among lenders limiting access to sound financing etc.)<\/span><\/p>\n

Now, let me quickly highlight a couple of data points, which should substantiate the fact that the office is in very bad shape as of now.<\/p>\n

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Avison Young – Market Report<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

The investment volumes among all key office categories has plunged in 2023 to similar levels we experienced around the GFC period. It seems that because of the high uncertainty, nobody is willing to commit notable streams of capital in the office space.<\/p>\n

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Cushman & Wakefield<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

And this is totally understandable given how consistently the vacancy rates are ticking higher, while asking rents PSF have remained flat during the most inflationary environment we have had in the past decade or so.<\/p>\n

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Avison Young – Market Report<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Finally, one of the main areas of concern is the<\/strong> upcoming debt maturity wall,<\/strong> which to a meaningful extent consists of very cheap loans assumed before the Fed decided to go the “hawk” road.<\/p>\n

More practically speaking, this situation makes the market nervous (to say the least) and contemplate on the following (selected) question:<\/p>\n