If there's one sector that's taken a serious beating in the course of the pandemic, it's office REITs, or real estate investment trusts. At this point, workers have been doing their jobs remotely for two years and counting. And the fear among investors is that office occupancy levels won't ever return to pre-pandemic levels.
That may or may not hold true. The reality is that after two years of remote employment, a lot of companies are realizing that this setup actually works. Not only that, but there are savings to be reaped by keeping staff remote.
Companies that continue with remote work once returning to the office is safer can spend less on leasing costs and reduce their overhead. And maintaining remote work arrangements also makes it possible for businesses to widen their talent pool.
Still, a growing number of companies are making plans to return workers to the office in light of a waning omicron surge. And so investors need not give up on office buildings just yet.
Should office REIT holders breathe a sigh of relief?
Earlier this month, Microsoft announced a late February reopening of its Washington and California offices. Like many companies, Microsoft had initially postponed its fall reopening plans as COVID-19 cases started to climb and is only now making concrete plans to bring workers back.
But it's not the only company that's beginning to reopen its offices. And if COVID-19 numbers stay relatively flat, we could see a more robust office return nationally come springtime.
That shift could work wonders for office building landlords, many of whom are desperate to see leasing activity pick up. But while office REITs might enjoy a nice near-term revival, let's not forget that an uptick in COVID-19 cases could send workers back to their home-based desks quickly.
Now that employers know what it means to have staff working remotely, they may be less likely to take chances, not just during COVID-related surges, but during periods when more cold and flu germs are circulating. And because so many workers have come to enjoy more flexible employment setups during the pandemic, companies may not hesitate to uphold hybrid work arrangements even if COVID-19 becomes something we no longer make lifestyle changes to cope with.
As such, it's OK for office REIT investors to celebrate a return to offices, but they also shouldn't let their guard down -- because the reality is that office buildings might never look the same in the wake of the pandemic.
That doesn't mean that investors are in for serious losses. Office landlords have different options for attracting tenants and, if necessary, repurposing space to generate revenue. But all told, offices might look different from this point onward, and that's something investors should prepare for.
Is it a bad time to buy office REITs?
Until we see a more steady return to offices, investors may want to avoid adding office REITs to their portfolios. But that doesn't mean existing office REIT holders are doomed.
Many major employers have expressly said that remote work is not the wave of the future, despite the fact that it's been the norm for the past 24 months. And so while it pays to give office buildings time to settle into their new reality, that doesn't mean they won't be a good investment at some point down the line.