Office REITs own and manage office real estate and lease space in those properties to various tenants. Properties can range from skyscrapers to office parks to individual buildings, and they are located in central business districts or suburban areas. Offices play an important role in the structure of our communities. They form the basis of local employment centers and help support small businesses. They also provide significant funding for public services and infrastructure, usually through property tax revenues.
The August 2023 Survey of Business Uncertainty, conducted jointly by the Federal Reserve Bank of Atlanta, Chicago Booth, and Stanford University, polled a sample of senior executives about the past, present, and future state of remote work in the US, finding that Remote work is expected. By 2028, a modest increase to 72.6%, 16.3% and 11.2% of full-time employees is expected to be in fully in-person, hybrid and fully remote roles, respectively. These results reinforce the importance of the Office for Collaboration, Innovation, Knowledge Transfer and Mentorship.
While working from home was initially thought to be a boon for productivity, further research suggests that this may not be the case. Data from the Survey of Work Arrangements and Attitudes from January to June 2023 shows that while 43% of workers believed they were more productive working from home, 43% indicated their productivity was better than that of their office. performance was similar, and 14% said they were less productive. Controlling for commuting time savings virtually eliminates the perceived productivity benefits of working from home.
Despite concerns regarding the impact of work from home, data from Nareit’s T-Tracker® shows that office REITs maintained a degree of operating buoyancy in the third quarter of 2023, with the sector averaging four-quarters of same-store Net operating posted. Income growth rate 1.6%. Office REIT has also exercised discipline in its balance sheet building activities. Fixed rate loans were 89.1% of total loans; The weighted average period to maturity and interest rate on the total loan were 6.8 years and 4.1% respectively.
Federal Open Market Committee (FOMC) tightening cycles typically mark inflection points in the U.S. economy and financial markets. Public equity REITs have historically enjoyed a resurgence in total return performance after monetary policy tightening cycles end. With the end of the current set of rate hikes, REIT total returns have bounced back. From the FOMC’s November 2023 announcement through year end, the FTSE Nareit All Equity Index posted a total return of 21.0%; The office’s total return was actually more than 36.7%.
- 2: Publicly listed equity office REITs, from the FOMC’s November 2023 announcement to year-end, ranked second in total return performance among the 13 REIT sectors in the FTSE Narrated All Equity Index, recording a return of 36.7%.
- 9: Highlighting their sustainability and management commitments, nine office REITs received the highest (5-star) rating from GRESB, the global ESG benchmark for real assets in 2023.
- 65: Economists at Chicago Booth, Stanford University and ITAM estimated that, on average, 65 minutes are saved each day on commuting and grooming activities when American employees work from home; And 30% to 40% of this savings was allocated to their jobs.