Daily Management Review

US Offices To See Big Change Because Of Novel Coronavirus


US Offices To See Big Change Because Of Novel Coronavirus
Analysts of the commercial real estate industry of the United States are of the opinion that the impact of the novel coronavirus pandemic in the country will have an impact on the office rental sector in the country similar to what happened with malls because of the emergence and growth of e-commerce.
American corporate could move to downsize their offices because of the now tried and tested formula of millions of American office goes now working from home. In recent year, there has been a trend to reduce office among the corporate which has resulted in the office sector not performing as other property asset classes.
This development comes at a time when a boom in the job market and economic expansion resulted in a boom in the leasing business in New York. However that trend has been upended by strict stay at home and work from home orders and closure of offices in order to reduce the rate of spread of infections form the novel coronavirus.
And after witnessing how well the work-from-home experience has gone through, aided by new technology such as video conferencing, there is a threat of a further reduction in the amount of square footage companies lease.
According to Gina Szymanski, a portfolio manager at AEW Capital Management LP in Boston, one of the largest real estate investment managers, it has been possible to collaborate remotely and for staff to be as productive as when they work in office spaces, because of apps such as Zoom, Microsoft Teams and Google Hangouts.
"Work collaboration apps will likely have a long-term impact on office (space) similar to the impact that mobile shopping had on retail," she said. "Corporate footprints will continue to shrink."
Leasing prices, that increased significantly during the good times to record highs, in Manhattan whose properties have for long been the most fought after property class of the US, could drop to  a large extent just as it happens in a recession.
According to conventional estimates, the impact of the global financial crisis of 2008 was such that since then the space per worker has dropped by 50 per cent to about 150 to 125 square foot (14 to 11.5 square meters) while it has been further reduced by another 50 per cent because of the advent of the concept of coworking space.
This has created huge challenge for some time now for owner of publicly traded office buildings in New York.
In the five years through the end of 2019, there has been a drop of about 20 per cent in the share prices of SL Green Realty Corp and Vornado Realty Trust which are the two largest landlords in New York. In comparison, there has been a 57 per cent rise in the wider S&P 500 index in the same period. The share prices of the companies dropped at a pace that was twice as fast in the recent downturn because of concerns of investors that some tenants would not be able to pay their rent.
Another important factor that could hinder investment return is the age of buildings. The Manhattan skyscrapers, built as recently as the late 1990s, have been rejuvenated by landlords as the expense of hundreds of millions of dollars. Similar spending has also been witnessed in other many US cities aimed at protecting an asset values.
"It's going to accelerate this move to newer office space and it's going to suck the life out of non-quality assets, this transition from older stock," said Scott Crowe, chief investment strategist at real estate-focused CenterSquare Investment Management in Philadelphia, who added that the premium between new and old space has been increasing "exponentially."