Business & Investment

Office stocks are hit as concerns about Omicron mutants help slow demand

Pedestrians pass by commercial real estate in Manhattan.

Michael Neagle | Bloomberg | Getty Images

On Tuesday, the stock price of the country’s largest office REIT fell again as the office market faced new concerns about Covid’s Omicron variant. This is in addition to the new chill in office demand, which had improved sharply earlier this year as Covid19 vaccination promised a safe return to work.

Largest office REIT stocks like Boston Properties, SL green, Douglas Emmet When Alexandria real estate stock When the news of the variant spread on Friday, everything plummeted and hasn’t recovered yet. These inventories are skyrocketing, up about 25% year-on-year.

The S & P 500 also fell on Tuesday, dropping more than 1.5% in the morning trading.

New demand for office space fell to its lowest rate since the first quarter of this year in October, according to a new report from commercial real estate asset manager VTS. That is the second consecutive month of decline. Demand has now declined by 30% nationwide since it peaked in August of this year.

VTS tracks new face-to-face and virtual tenant office tours in the US core market as an indicator of future office leasing activity.

Demand for new offices has skyrocketed since bottoming out in June 2020. By August this year, it had increased by 444%. Demand growth may be due to a more optimistic return-to-work scenario, as Covid19 cases have declined and vaccination has increased. But new concerns are overturning the trend.

“Eighteen months after the pandemic began, employers and employees have similarly adapted to new ways of working, which often means permanent remote or semi-remote work,” said the CEO. Nick Lomit says. Of VTS. “The longer we are in limbo, the more we are in limbo, where we still have anxiety about getting back to work, even with vaccines and better Covid-19 treatment, the more demand for office space will be forever. More likely to be lost and eventually new normal. Time is not on the side of the office lease. “

Demand declined in all major markets, but the worst demand was seen in Los Angeles, San Francisco, Boston and Seattle. Conversely, in New York, Chicago and Washington, DC, new demand fell by less than 10% in October. The difference between these markets is likely due to the strength of the pre-pandemic market (DC and New York were very strong) and the prevalence of companies with remote-friendly work environments.

Demand also varies depending on the type of property. It is not shown in the country photo.

Alexander Goldfarb, Senior Research Analyst at Piper Sandler, said: “Most of the leases occur in brand new constructions and buildings that have recently been significantly refurbished. The loser is a mundane office tower. Covid is accelerating that trend.”

Goldfarb said he was less concerned about this variant than the competition between companies for a quality workforce.

“The big problem for these companies is the mass resignation. Companies are hesitant to require employees to return to the office if they feel they can quit and go to another company.” Goldfarb said.

He argues that companies may use the latest variations to boost their return to office space, but office fundamentals are still good.

“The concern on the REIT side is that the office will be a retail replay in the fear of Amazon a few years ago. Stock performance has been cut off from fundamentals,” he said.

Office stocks are hit as concerns about Omicron mutants help slow demand Office stocks are hit as concerns about Omicron mutants help slow demand

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