The future for office commercial space looks increasingly uncertain, as more and more people work from home and some employers consider making it a permanent arrangement — even after the pandemic.
Transactions for office leases or sales are already significantly lower this year compared to a similar period in 2019, according to data from real estate companies.
REITs are companies that manage a portfolio of properties such as offices, malls, or hotels. Income generated from those assets, after accounting for fees, is distributed as dividends to shareholders.
The risk to real estate is higher when the exposure to coworking spaces is taken into account, with office REITs in some Asian financial centers — such as those in Singapore — being particularly exposed.
Investors generally find REITs attractive for their dividend payout and the potential for capital appreciation, and as a diversification in a portfolio of stocks, bonds and cash.
For now, here’s what investors need to know.
An increasing number of companies could allow their employees to work from home for an extended period of time, analysts predicted.
Companies could even look at longer-term flexible working arrangements, spurring concerns of a smaller real estate footprint ahead, said Derek Tan, head of property research at Singapore’s DBS Bank.
Rentals may get affected as a result.
Esther Liu, director at S&P Global Ratings, said: “We expect that the recessionary conditions will soften leasing demand in major central business districts across Asia Pacific. We also believe the ‘working-from-home’ measures may lead to a shift in longer term demand, as they present companies with the opportunity to cut space requirements.”
However, that shift will take time, and there won’t be a “significant drop” in occupancy in the near term, particularly in the prime, central locations, she added.
