When will Office Real Estate find it's Equilibrium?

Office Real Estate is arguably still in disequilibrium. There are three issues that investors are contending with:

Firstly, demand has changed. Working From Home has undeniably impacted required floor space. The extent to which may not be known for several years, as fixed term leases expire, and a new hybrid working culture evolves.

These demand changes have manifested themselves differently in different cities across Europe, the U.S. and Asia Pacific. And in turn, whilst vacancy rates may have started to stabilise, it may too early to draw comfort from the numbers. But these numbers are clearly important, as they will have a causal effect on landlords ability to raise rents.

On the supply side, the issues are different. Declining profitability as a result of higher input prices may not go away soon. An issue which is compounded by both the reduced supply and increased cost of capital.

Yet despite the above, real estate asset managers seem bullish. The statistics they are producing appear to support their view that the reality and outlook is better than perceived. Whether investors assign high confidence levels to these statistics remains to be seen.