More and more companies have pushed back their return date to the office until later this fall or early next year because cases of the delta variant continue to surge. This comes as office demand shows signs of life, but rents are expected to remain suppressed as landlords struggle to fill space.
This article was originally published by ZeroHedge.
Office demand is showing signs of improving as leasing velocity rises, and we believe that can stem the tide of increasing vacancy. However, with landlords having limited pricing power as they try to keep buildings full, effective rents may remain pressured. As more employees return to the office, demand for space may continue to increase, but rising Covid-19 cases may delay that impact. Moody’s Analytics REIS sees national office vacancy by year-end up 150 bps from 2020, but then stable in 2022, while effective rent may fall 4.2% in 2021 with little improvement next year.
In New York and San Francisco, two urban areas feeling the biggest burden of remote work, rents may decline in 2021 and 2022, even as leasing volume improves, limiting Vornado, SL Green, Boston Properties, and Kilroy Realty’s ability to grow revenue. – Jeffrey Langbaum, Senior REIT Analyst at Bloomberg
Amazon, BlackRock, and Wells Fargo have been some of the latest companies to delay return-to-office plans. Big banks have so far stopped short of requiring their employees to be vaccinated, in contrast with technology giants such as Google, Facebook, and Netflix have said employees will need the shots or weekly tests.
Another delay in return-to-office plans is bad news for commercial real estate that will continue a lackluster recovery well into next year.