NewsNationalScripps News

Actions

Commercial real estate market won't recover until 2040, economist says

With work-from-home trends continuing, commercial real estate in the U.S. will see a slow recovery, economist Kiran Raichura wrote in a report.
Commercial real estate market won't recover until 2040, economist says
Posted
and last updated

With work-from-home trends continuing, commercial real estate in the United States will see a slow recovery and office values are unlikely to regain their peaks even by 2040, according to an economist with Capital Economics.

“The reduction in office demand due to remote work will cause a hit to net operating incomes on a par with, or worse than, that experienced by malls over the last six years,” Kiran Raichura wrote in a report. “And in line with the experience of malls, the structural nature of this hit to demand means the 35% plunge in office values we’re forecasting by end-2025 is unlikely to be recovered even by 2040.”

Raichura said the recovery could take longer than the 15 years that economists penciled in, perhaps into the mid-2040s.  

The commercial real estate sector is facing stress due to higher mortgage interest rates and banks tightening credit. Coupled with the lackluster demand, landlords could face defaults. Capital Economics provides analysis and research for the real estate industry. 

There are three sectors in commercial real estate: office, retail and warehousing. While office and retail are suffering, there’s tremendous demand for warehousing, said Megan Fox, a commercial and residential real estate agent at Compass Real Estate in New Jersey. Converting existing commercial space takes time and money for the property owners, and towns have restrictions as to what it will allow, Fox said. 

Meanwhile, investors with office buildings are finding it competitive to fill the space.

SEE MORE: As the Fed pauses interest rate hikes, will home sales increase?

Tenants are asking for more and demanding more, such as fresh paint or décor, Fox said. Commercial landlords are also lowering their prices, with tenants having the upper hand. Companies are also seeking reconfiguration of office space, she said. Gone are the cubicles of yesteryear. Today’s companies want open spaces with pods for quiet conversations and a smaller footprint, Fox said.

“There is so much more work from home. People thought it was going to change after the pandemic, but there has been pushback,” Fox said.        


Trending stories at Scrippsnews.com