Will Office Space Be The Most Active Market In 2023?
The office real estate space appears to be undergoing a tale of two markets simultaneously. Much like housing has recently. Could that make it one of the busiest sectors for real estate investors in 2023?
Office Vacancies
NAR’s Commercial Real Estate Forecast for 2023 sees CRE prices coming down slightly, with increased vacancies. Especially in the office sector, due to the rise in remote work.
They’ve put the current vacancy rate in San Francisco around 15%. Though the government there fears 30% plus vacancy rates are coming, which will put a huge hole in tax revenues.
Similar trends seem to be happening in other office heavy markets, which used to be major business hubs. Like NYC.
According to Yahoo Finance, in the spring of 2021 26% of companies expected their office space needs to stay the same (already at post-COVID levels). 12 months later, just 9% of companies expected to need the same amount of space going forward.
This along with higher rates, and fears of a recession could well provide a lot of distressed properties and motivated sellers for investors.
Demand For New Office Space Is Growing
At the same time Yahoo reports that demand for new office space has been growing. This trend started in September and October. Led by Los Angeles with an over 37% increase in demand for new office space.
This seems most logically driven by more companies moving out of Silicon Valley, and to more affordable LA. Just as we’ve seen on the east coast, with massive migration from NYC to South Florida.
Along with this we seem to have a new generation of well funded startups happy to spend hundreds of millions of dollars on new facilities. Including manufacturing plants, biotech labs, cannabis growing facilities, and offices.
Making The Most Of Office Trends For Investors
With so many companies now proving that you can build and operate a multi-million and multi-billion dollar business with all remote teams, there is really little need for traditional office space any more.
Some old companies are desperately trying to hang onto that old and inefficient model. Especially those with big and expensive leases. It’s probably only a matter of time before they are forced to catch up to the new world of work, or are displaced by those with distributed workforces.
Some may find comfort in having satellite offices and part time desks and meeting rooms available. Though may rarely use them.
For investors we are likely to see a lot of office buildings come available to buy in 2023. These can still be repurposed or repositioned for highly profitable flips and wholesale deals.
They may be renovated for new modern startups, broken up into more boutique and shared workspaces, transitioned to being housing, or other CRE uses.
