Five years after the pandemic changed where and how people work, office real estate is still one of the most debated corners of private real estate. Meanwhile, ongoing headlines continue their focus on empty buildings and declining valuations.
But a recent write-up from Meketa suggested a more nuanced reality. Some office properties are achieving record rents while others struggle. Certain urban cores have rebounded, while others are trying to figure out their identities.
As a result, “investors continue to uncover compelling opportunities in select markets and capital structures,” Meketa said.
Office Was Changing Before COVID
Meketa explained that the sector’s challenges began before 2020. Investors and owners were already dealing with the rise of coworking, changing workplace preferences and competition from newer, less capital-intensive real estate sectors.
The pandemic accelerated those trends while changing office’s role. Once upon a time, the office was mainly a place where work happened. These days, office space competes with remote and hybrid options for employees’ time and attention.
At the same time, high capital expenditures, leasing costs and tenant improvement expenses have raised concerns about whether office deserves a permanent allocation within core real estate portfolios.
But treating office as a single sector or asset may be one of the biggest mistakes investors can make.
A Fragmented Market
Office performance depends on local economic conditions, demographic trends and workplace expectations. Two buildings in seemingly similar markets can have dramatically different prospects. At the same time, two markets can follow very different recovery trajectories.
That fragmentation also means a more complex investment landscape, as some buildings will do well while others will require repositioning or repurposing. Some markets may rebound faster than expected, while others continue to evolve as employers and workers settle into new patterns.
So, the challenge for investors isn’t just identifying which office markets will recover and when. It’s determining which assets, cities and investment strategies can succeed in a world where the office no longer dictates how and where people work.
“Periods of disruption often create some of the most compelling investment opportunities, and the office market appears no different,” Meketa said.
The post Office Isn’t Just One Market. That’s Where the Investment Opportunity Lies appeared first on Connect CRE.
