We're roughly two full years into the pandemic, and while many things have changed for the better since March of 2020 (hello, vaccines) have been introduced, the impact of the outbreak is still being felt in many ways. For one thing, many people have yet to recover personally from the financial blow the pandemic dealt them. And a number of real estate sectors continue to struggle in the pandemic's wake.
Mall real estate investment trusts (REITs), for example, remain somewhat precarious in light of the record number of store closures we've seen during the pandemic. And hospitality REITs could remain sluggish as business travel continues to stall.
But there's one REIT sector that really worries me not only in the near term but also, to an extent, in the long term. And that's why I'm opting to stay away this year.
Office REITs have a long road ahead of them
When the COVID-19 outbreak first erupted, companies sent workers to do their jobs from home for what many of us thought would be a handful of weeks. Fast forward two years and many major employers have yet to return workers to the office.
To be fair, it's not that companies haven't tried to resume in-person work. Last year, many employers were targeting a late-summer return only to have those plans thwarted by the delta variant. Plans to have workers return to offices in early 2022 were then shattered by the omicron surge.
But at this point, a lot of people are just plain used to working from home. And many companies have adjusted to having their staff remote and scattered all over. And the more remote work gets normalized, the more of a permanent arrangement it's likely to become.
For this reason, office REITs are a sector I don't want to touch anytime soon. It's not that I think offices will become obsolete. Many well-known companies have made it clear that remote work is not, in fact, the wave of the future and that in-person work lends better to productivity and collaboration.
But do I think leasing activity at office buildings will be sluggish in the near term? Absolutely -- namely, because there's little motivation for companies to rush to sign or renew leases when the world is still so unsettled from a pandemic-related perspective.
Let's remember that while the omicron surge seems to have settled down in much of the country, there's already talk of a new sub-variant with the potential to wreak havoc. COVID-19 has managed to surprise us since its emergence on U.S. soil two years ago, and while restrictions are being eased in much of the country, thanks to the widespread availability of vaccines, the health crisis is by no means over.
At this point, reopening offices carries a degree of risk. And it's a risk many employers may not want to take when they've been managing with a remote work setup for two years and counting.
Flexibility could hurt office REITs, too
Even once a full-fledged office return becomes safer, workers across the country have gotten used to enjoying more flexibility -- and that's something companies can't just forget about. In fact, many employers have plans to implement hybrid work setups once things settle down on the pandemic front, where workers do their jobs remotely for part of the week and report to the office the rest of it.
But even hybrid arrangements make the case for less office space. And as more companies adopt them, office REITs might struggle with vacancies.
All told, offices may, in the coming years, look and function very differently from how they did before the pandemic. And that makes office REITs too iffy a prospect for me right now. While I'm not the sort of investor who runs away from risk, given the uncertainty that abounds in this space, I'm inclined to put my money into just about any other REIT sector before giving offices a chance.