Real estate is cyclical. Most people know that, but when they are in the thick of it, panic sets in, and they lose their minds. What most people fail to realize is that the whole market itself is not cyclical, but every individual part of it is. One area may be up while another one is down.
Why People Fear Office Space Right Now
The COVID-19 pandemic has taken its toll. It’s shown us how easy it is to hop on the computer and have a meeting. We can stay home, take care of the kids, eat a snack, and do our work without showering, putting on pants, or leaving the house. Three years ago turning on video for a teleconference was the ‘weirdo’ thing to do. Few people even had a camera. Then the pandemic came along, and for 4 months, you couldn’t even buy a webcam, the things were flying off the shelves. Now, the ‘Zoom culture’ has taken over the office.
Most of those dollars came from companies with office workers, now working from home. That trend is emptying office buildings across the country. If you are an owner of a large office building, you are bleeding, having to accept lower rents each year.
Source: National Association of Realtors
It’s not the bloodbath that happened in residential in 2008, but it’s hard to get excited about buying an office building right now. It’s ugly. So why do I love office space?
Why I Love Office Space Right Now
The #1 reason is the Warren Buffet reason: When everyone is selling, you should be buying. The problem with that reason is that it’s hard to time the market. If the sector continues to decline, then you may have a problem. Buffet doesn’t recommend timing the market, however, and you shouldn’t either. The market is down and good prices can be had.
The #2 reason is exactly that, bargains are everywhere. Just like in multifamily, the owner has had some difficulty, maybe let some maintenance items slide, and left you with a good deal. Usually there are vacancies. In the office realm, it’s rare to find a fully-leased building for sale; why would they sell when it’s making money? Those maintenance and vacancy issues translate into a lower price.
On to #3: office is coming back. All that convenience in working from home isn’t going away, I get that. What others fail to see are the inconveniences at home. The worker is now paying for their own internet, computer, and electricity. They have screaming kids entering the webcam shot during important meetings. They have no adults with whom to talk about Stranger Things that just came out on Netflix. We are already seeing people who are wanting to come back in to the office to join their coworkers and friends. If a company needs an office cubicle for even one day a week, then they are renting it for a whole week. There will likely be more workers staying home on Mondays and Fridays, but coming in for in-person meetings mid-week. They may even share offices with others, who come in at different times. This presents a cost savings for employers, who are seeing the benefits of work from home, but still want workers in the office from time to time.
Finally #4 is the obvious one. There are tons of businesses that can’t go only online. Restaurants and coffee shops and health care, retail too. Sure, Amazon has a huge influence, but there will always be a need for something right now, and some people love to just go shopping (not me). Even the accountant and attorney, who can largely work from home, will need a place that they can meet clients. This place has to look nice; it can’t just be some industrial building out in the boondocks.
I closed on my first office building this month. It has two vacancies out of three suites. It’s underwater, but I’ll be putting tenants in there for bargain rents, fix the place up, then the place will be a moneymaker. Let me know if you think I can do it.
