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Investors Shouldn't Give Up on Office Buildings Just Yet

Jul 21, 2020 by Maurie Backman

The COVID-19 crisis has changed the way a lot of people work. In March, when the pandemic struck, a large number of U.S. companies moved their staff out of offices and into work-from-home arrangements. And despite some initial challenges, at this point, employees and employers alike have gotten used to remote work -- so much so that some companies might consider sticking with it on a long-term basis.

For employees, that's a good thing. Those who get to work remotely post-pandemic will no doubt save on commuting and enjoy the flexibility of not having to report to a physical office. Long-term remote work will benefit companies, too -- particularly for those who may currently be paying a premium for large office spaces they'll get to unload.

In fact, the remote work trend may have some commercial real estate investors spooked, and understandably so. If there's less demand for office space, commercial property values will start to decline, and lease agreements won't be as lucrative.

But despite this fear, commercial real estate investors need not lose hope. Though the demand for office space might change in the coming months and year, it won't necessarily disappear. In fact, Brookfield Asset Management Inc.(NYSE: BAM) one of the world’s biggest real estate investors, has started seeing higher demand for office space as employees begin to return to offices. And the need to socially distance could prompt many commercial tenants to maintain leases for larger spaces, even if their in-office headcount isn't what it once was.

The office building isn't dead

While it's true that the COVID-19 pandemic could spur a shift to remote work, many companies will no doubt be eager to return their staff to an office setting. And once that happens, they'll need more space than ever -- especially in the near term, while COVID-19 remains a threat.

Even beyond COVID-19, the pandemic has brought the dangers of cramped offices to light. While the need to socially distance for COVID-19 prevention purposes may not exist beyond 2021 (let's hope), the reality is that offices are hotbeds for germs, and giving people more physical space to work is a smart idea even when a pandemic isn't in progress. As such, we may find that for every company that doesn't resign a lease for office space, another company will take over that lease in an effort to spread out.

Of course, it's too soon to tell how well the remote work trend will hold up once it's safer to return to an office environment. While commercial real estate investors should be cautious about reduced demand for office space, that may not actually come to be, especially as more and more businesses start to remember what it's like to have in-person meetings and collaboration. Effective as remote work may have proven itself to be, the reality is that it's been a matter of necessity since March. And once employees and employers alike grow tired of it, office space demand may very well rise, or at least hold steady.

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Maurie Backman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Brookfield Asset Management. The Motley Fool has a disclosure policy.

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