Look at current office (availability) vacancies data in major cities. Those number are high and have gotten higher in the last year. The economy is back from lockdown, but that does not mean that workers are going back to the office. Workers do not want to go back, and corporations cannot make them in the current labor market. Hence, the need for office space will be declining as firms rationalize their square footage.
Economic growth will take us out of this problem and in this market, it is hard to have any pricing power if you are a landlord. Prime real estate may do better on a relative basis, but for buildings that are not class A space, it is going to be a ghost town.
The chart below shows default rates. By this measure, the market looks good, but there is a delay between increases in availability and the repricing of rents. This is all occurring in a rising interest rate environment. Inflation may increase the value of buildings but that is only under the assumptions that it is occupied and rates rising with inflation. Office CMBS will be a dangerous credit market.
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