At this point, real estate investors with money in office REITs (real estate investment trusts) may be getting an unwanted sense of deja vu. Earlier this year, many major companies firmed up their office reopening plans, only to have to walk back those plans when the delta variant hit hard.
For a lot of those employers, the solution was to push back reopening plans to January of 2022. The logic there was to give the delta wave time to subside and allow workers to get through the holiday season, as well as the uptick in cases likely to ensue during it.
But now, there's a new pandemic player to contend with: the omicron variant. So far, it hasn't surpassed the delta variant in the context of U.S. cases. But health experts are gearing up for it to overtake the country in the coming weeks due to its highly transmissible nature.
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That's causing a lot of big companies to rethink their office reopening plans yet again. And that's bad news for office REITs on a whole.
A prolonged recovery
Office buildings have largely sat vacant since the start of the pandemic. And while it initially looked like returns would ramp up in January, now a lot of major players are postponing reopening plans -- some indefinitely.
Earlier this year, Morgan Stanley CEO James Gorman made a big stink about workers returning to the office in the fall. Recently, he acknowledged that he was wrong to push employees back to their desks so quickly and stated that remote work may persist well into 2022.
And that's just one example. Tech giants like Alphabet have also postponed their return-to-office plans, and in the coming days, we can probably expect more announcements along these lines. All of this is coming at a time when a number of major universities were forced to revert to remote learning due to local outbreaks.
Of course, none of this is good news for the economy or society on a whole. But it's particularly bad news for office REITs, which were no doubt banking on seeing more bodies in desks by early 2022.
The longer employees work remotely on a larger scale, the easier it will become for companies to adopt that model permanently. And if companies don't renew office leases because they've adjusted to this new normal, office REIT values could plunge.
Now the silver lining is that early reports on omicron seem to indicate that it causes less severe illness. That's important on a societal level and is essential to not overwhelming healthcare systems.
But from an office REIT standpoint, that doesn't really help matters. Workers aren't going to risk even mild illness if it's of the coronavirus variety. And companies can't afford mass absences due to sickness and quarantine requirements.
Plus, while reports do point to omicron being less severe than the delta variant, the latter is still very much with us and doesn't appear to be slowing down. As such, real estate investors will just have to sit tight and hope that this latest coronavirus variant subsides as quickly as possible.
