Though the concept of remote work had started to take off prior to the coronavirus outbreak, in many cases, it was considered a privilege more than the norm. But once the pandemic began, companies quickly pulled their employees out of offices and pivoted to remote work arrangements.
Now, one year later, the idea of returning to an office building is still precarious, given where we're at in terms of the pandemic. And also, at this point, it may not be necessary.
A lot of companies -- and their employees -- have done a fine job adjusting to remote work. After roughly a year of working from home, employees may be used to the idea of logging onto remote meetings in their living rooms and not having to commute. And managers and executives may be starting to recognize just how much cost savings they stand to reap by either unloading office space completely or significantly downsizing that space to allow for a hybrid model of partial remote work and partial in-office work once the pandemic comes to an end.
All of this is bad news for real estate investors with money in office buildings, whether through ownership of those buildings themselves or real estate investment trusts (REITs) with a large number of office buildings in their portfolios. If demand for office space doesn't pick up once the pandemic comes to an end, repurposing those buildings will be difficult.
But in some markets, the recovery of office buildings looks more promising. Here's what investors should know.
Markets where offices are opening back up
The Kastle Back to Work Barometer, which tracks office activity across 10 key metro areas, found last week that Los Angeles, Philadelphia, and Washington, D.C. saw an uptick in workers returning to an office. By contrast, Austin, Dallas, and Houston, Texas, saw major declines. It's worth noting, however, that severe winter storms in that area could be the driver of that decline, because as of late January, those three metro areas were actually the strongest in terms of office building occupancy.
Meanwhile, New York's office building activity remained flat last week, while both San Francisco and San Jose, California, saw modest declines. And Chicago saw the steepest weekly drop aside from Austin, Dallas, and Houston.
When will office buildings start to recover?
Given that the coronavirus outbreak is far from over, there's a good chance office building occupancy won't have a shot at returning to pre-pandemic levels until late 2021 or 2022 at the earliest. And even once the pandemic ends and safety concerns are no longer as dominant, some employers may continue to uphold a remote work arrangement for the savings involved.
Office building investors may therefore be in for a rocky ride in the near term. In fact, we may not have a solid handle on longer-term occupancy projections until the pandemic is truly behind us and the U.S. economy recovers as a whole. All told, investors should brace for the fact that office building demand may never quite return to pre-pandemic levels.