NAREIM Dialogues Fall 2021 issue

October 25, 2021

Surveys positing that the return to the office has been accelerated jostle for airtime against others claiming a meaningful number of employees would rather quit their current employer than return to the office. 

The truth, of course, is much more likely to be somewhere nearer the middle. And given investors’ large allocations to office (the sector comprises a material 34% of ODCE funds’ holdings), there are millions of dollars at stake in translating the implications of these headlines successfully to one’s own assets. 

One of the ways investors have attempted to hedge themselves against deteriorating fundamental conditions or potential obsolescence in the past is by focusing on higher quality, Class A product. 

Yet with prospects for weaker demand in a hybrid work environment, there is a risk that this defense alone proves insufficient. 

As available supply outweighs demand, occupiers will have their pick of the litter — adding greater downside for the losers, yes, but creating greater upside potential for those buildings that are best positioned to capture a larger slice of what looks to be a smaller pie. Sabrina Unger and Britteni Lupe, of American Realty Advisors explain:

1.  Relative resilience of office occupancy

2.  When Class A isn’t enough

3.  If not Class A, then what?

Case study charts are also presented on:

• Proportionate share of occupancy band by class designation (select markets)

• Bridge to better occupancy

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