The pandemic has dealt a dreadful blow to office REITs, or real estate investment trusts, and the worst may still be yet to come. That's because we're nearing the two-year anniversary of not just the start of the pandemic but also remote work.
To be clear, remote work was a thing prior to the COVID-19 outbreak, but it wasn't common. These days, a large chunk of the labor force is working remotely, whether by choice or otherwise. And the fear among real estate investors is that office REITs will lose value if buildings continue to sit vacant for months on end.
But at a time when so many companies are delaying their office return plans due to the omicron outbreak, Google is actively investing in office real estate. And that alone is a sign that investors shouldn't be too quick to lose hope.
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Another major purchase for Google
Google recently announced that it will be purchasing a London office building for $1 billion. And while it may be surprising to see the tech giant sink so much money into office real estate, it's a sign that Google is clearly invested in having its staff collaborate in person once it's safe and viable to do so.
The London building, however, isn't the only real estate acquisition Google's made recently. In September 2021, the tech giant spent $2.1 billion on additional office space in Manhattan.
To be clear, Google isn't one of those companies that's insistent on seeing remote work disappear. Rather, the company has said that it intends to adopt a more flexible, hybrid approach to work.
Many other big names are contemplating a hybrid setup once returning to offices becomes more feasible. Under these setups, employees would do their jobs from home several days a week and report to the office the rest of the week.
While the hybrid model may not be the most favored among office REIT investors, as it still affords companies the opportunity to shed square footage, it at least affirms the commitment to in-person work. And so the fact that Google is not only pursuing this type of setup, but doing so in conjunction with buying office buildings, is something real estate investors should be happy about.
When will office occupancy pick up?
It's tough to predict when we'll see a more robust return to office life. Many companies made plans to bring workers back in the late summer or fall of 2021, only to have those plans thwarted by the delta variant.
Then, companies started targeting the start of 2022 as their new return date. But we all know how well those plans turned out.
The extent to which office buildings remain vacant in 2022 will hinge largely on the trajectory the COVID-19 outbreak takes. Health experts have been optimistic that the current omicron wave will be relatively short-lived. If that proves to be the case and the situation improves drastically, we could see office buildings start to fill back up come spring.
