One empirical observation that attracts professional investors to the real estate market is landlords ability to raise rent above inflation. But this assumes that vacancy rates are low and tenants are prepared to pay. How does that rationale translate to the office market, two years into COVID?
With clear data insights on office utilisation lacking, drawing conclusions from non-traditional data can share some light on how the new hybrid working model is, and will potentially impact vacancy rates.
Useful trends can be extracted from Google workplace mobility data, Bloomberg's Pret a Manger Index, and the INRIX Global Traffic Index.
What these sources suggest is that the negative impact on office from partial WFH, combined with 20-40% less office utilisation than pre-COVID, may not be compensated by the expected increase in office employment needed to offset the current increase in vacancy rates. If lower office attendance gets absorbed by a shift to hot-desking, and firms aim to reduce their office footprint, the inflation hedging ability of office may deteriorate.
Fortunately, the magnitude of this risk for office real estate investors will vary from city to city, region to region, country to country, tenant to tenant, and industry to industry.
In other words, the assets and the asset managers that investors select going forward, may be very different. At least, the managers we see getting traction inside RFPnetworks are not the ones who usually get all the footfall.