Impacts Of Office Space Changes Continues To Be Hot Topic In Commercial Real Estate

By KIMBERLEY HAAS

As companies work to determine what their office demands will be post-pandemic, commercial real estate experts continue to debate the impacts on the industry and the banking system.

With office vacancy rates hitting an all-time high in August, it is feared that if office buildings become obsolete, banks will be left to weather the losses. But during a webinar hosted last week by Marcus & Millichap, a California commercial real estate firm specializing in investment sales, financing, research, and advisory services, it was agreed that office commercial real estate loans make up a small percentage of total bank outstanding loans.

Jeffrey DeBoer, founding president and CEO of The Real Estate Roundtable, a nonprofit public policy think tank based in Washington, D.C., estimated that percentage to be 3.6%.

“It’s a small sector of the overall pie of commercial real estate. And it’s a small sector of the overall holdings of banks in general,” DeBoer said.

DeBoer explained that every sector of commercial real estate went through challenges related to the pandemic. Now, the spotlight has turned to office space.

“When the press says, first of all, that commercial real estate is in chaos, that’s simply not true,” DeBoer said. “I think the thing that really needs to be remembered that’s not getting through, certainly to the press, certainly maybe not to some investors, is commercial real estate is not all the same. You can’t paint it all with the same brush, nor can you paint banks with the same brush.”

A chart used during the webinar showed that while rents have grown 50.6% in the industrial sector and 34% in the apartment sector over the course of the last five years, rent growth for offices over the same time period has only been 4.6%. So although rents may need to go up to offset higher interest rates when property owners refinance, the overall impact will hit differently than in other commercial real estate sectors.

As the debate continues, more workers are being called back into the office.

Companies that allowed employees to work remotely during and immediately after the Covid pandemic are reversing course this year. On Sept. 5, Meta’s requirement that employees assigned to an office show up at least three days a week went into effect.

With the policy change, Facebook and Instagram’s parent company joined Google and other major employers that are pulling the plug on remote work despite advances in technology that allow people to log in from anywhere.

A recent survey by ResumeBuilder.com found 51% of companies require some or all employees to work in person and 39% more plan to by the end of 2024.