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Indebta > Small Business > The Fate Of Office Buildings In The Remote Working Era
Small Business

The Fate Of Office Buildings In The Remote Working Era

News Room
Last updated: 2023/05/31 at 7:29 AM
By News Room
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Larry Goodman is COO of HomeVestors of America.

Contents
Commercial Property Values Shift As Loans Are DueThe Future of Office Spaces

Whether employers like it or not, our society has officially entered the “work from home” era. In the aftershock of Covid-19, hybrid work schedules have become the new normal. At the end of last year, various large cities saw office occupancy hit a record high since pre-pandemic times—at almost 50% full.

As employees continue to take advantage of the ability to work from home, many are asking a lot of questions about office spaces: “What happens to office parks?” “Will office building values drop?” “What does this mean for the economy?” All of these are reasonable questions to ponder, and unfortunately, there’s no definitive answer.

I’ve spent a lot of my career in the commercial real estate industry. Admittedly, this is the first time in quite a while that I’ve been equally unsure and intrigued by its fate. While it’s unlikely that we’ll see something similar to the financial events of 2008, there is a good chance that the rate of defaults will increase and that financing for commercial real estate investing will drop. So, what’s next? Although it’s impossible to know for certain, I’ll give you my best guess.

Commercial Property Values Shift As Loans Are Due

According to CNN, office properties in 2021 to 2022 dropped the most in value out of all commercial real estate properties. Decreasing by 5.7%, the next biggest decline was in retail by 0.9%. However, apartment buildings, hotels and industrial properties all saw increases of 4.3%, 5.6% and 12.6%, respectively.

Predictions show office space values will only continue to drop. As remote and hybrid work take their toll on office buildings, these types of commercial properties will most likely depreciate in value by a whopping 28% from now until 2029—totaling a loss of $500 billion, according to a study conducted by NYU and Columbia University.

Couple this with the strain the banking sector is feeling at the moment due to the collapse of Silicon Valley Bank and Signature Bank, and we’ve got a tight financial situation. According to Trepp, there are $270 billion in commercial real estate loans currently held by banks that are due this year—a figure that jumps to $1.4 trillion by 2027.

However, not all is lost. In my opinion, there are still ways for current commercial real estate investors to pivot their strategies and reduce fallout.

The Future of Office Spaces

There’s one thing we can’t make more of, and that’s land. So, we need to use the land and real estate we do have and maximize its value. Taking cues from the numbers presented above, there is the potential for office spaces to be repurposed as housing options or warehouse space. Current investors should take stock of what amenities their communities already have and what they may be lacking.

If you don’t need as much office space anymore, then what do you need? After a bit of analysis, you may realize your area needs a fitness facility, or maybe even an urgent care center. A lot of times, getting the space for a business can be a tricky process. In this case, you have the space; now you just need to figure out how to best utilize it.

Current investors may not even need to make that many changes to their existing properties; there’s always the option of capitalizing on what is already popular. As remote work has become a mainstay rather than a trend, the concept of the hub-and-spoke model has been on the rise: The “hub” acts as a headquarters for employees to gather, meet and collaborate, and the “spokes” give people the option to work from wherever they’d like.

For commercial real estate investors, this creates a lot of opportunity. Adapting your existing space to be satellite offices doesn’t require a large renovation but gives you the ability to fully utilize the real estate. Satellite offices can be rented by large or small companies, or even individuals who need a space outside of their home to work.

I truly don’t think office spaces will ever be obsolete. What will change is the way in which they are used. I think about this frequently, but it’s never been truer now: Flexibility is key to outliving times of uncertainty. Sometimes, strategies have to change. It doesn’t mean the original plan wasn’t any good, but it does show strong leadership and critical thinking skills—and when times are tough, those are what’s needed most.

Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?

Read the full article here

News Room May 31, 2023 May 31, 2023
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