Commercial Investment Real Estate Spring 2021 | Page 14

BY THE NUMBERS WITH

BY THE NUMBERS WITH

By Thomas P . LaSalvia , Ph . D .

CHECKING ON THE RECOVERY

The office sector faces hardships in the wake of COVID-19 , but long-term projections show the market will persevere .

Dismissing the coming structural changes in the office sector would be naïve — but so would signing the sector ’ s death certificate . While work from home has proven adequate in many ways , the path forward is likely to be a simple expansion of the pre-pandemic hybrid model . This in no way excludes the office sector from current and future space and capital market stress , but balance and nuance are required in the discussion .

Given the long-term lease nature in the office sector , it is not surprising that 2020 rent and vacancy trends were mostly stable ; recessionary lags of six to 18 months are typical . During the year , U . S . effective rent levels declined 0.6 percent , while the vacancy rate increased 100 basis points to finish the year at 17.8 percent . Given the traditional lag , the direct consequence of the economic strife is likely to hit later in 2021 . As shown in the chart , effective rents are expected to fall another 7.6 percent , with vacancy reaching nearly 20 percent by the end of 2021 .
Moving forward , the sector ’ s recovery is unlikely to be V-shaped — a check mark may be more appropriate . Many firms are pausing expansion plans related to office space , and more than a few will feel a reduction is warranted . This great work-from-home experiment has showed employers that certain tasks can be completed without constant in-person supervision . Due to this , the percent of traditional office labor working from home at least one day a week is likely to double from its pre-pandemic levels and top 40 percent in the near future .
While the hybrid model is certainly primed to expand to more firms and employees , the increase in fully remote jobs will be more muted and reserved for less creative occupations and tasks . Innovation needs interaction . Economics teaches us that informal
Office Sector Trends and Forecast
0.20 % $ 40
0.15 % $ 30
Vacancy Rate
0.10 %
0.05 %
$ 20
$ 10
Effective Rent / sf
0.00 % 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Source : Moody ' s Analytics
$ 0
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COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SPRING 2021