Taking the Over on the Office Market
Sports gamblers will be familiar with the concept of “taking the over” or “taking the under.” For any game, the “market,” or group of all betters, will establish the most likely total number of points that will be scored. Individual participants will then “bet the over” – hoping that the game produces more total points than the set number – or “bet the under” – hoping that the game produces fewer points.
If we take this concept to the real estate market, specifically the office market today, we might set the mark as the probability that conditions “fully recover” from the pandemic impacts within a year. It should come as no surprise that the market is setting the most likely probability rather low. There is no shortage of articles or conversation suggesting that health concerns, inconvenience, and costs are challenging the traditional central office concept. Furthermore, improving success with work-from-home, virtual conferencing, and connectivity technology is amplifying the “I don’t need an office” chant.
Translating the volume of the claims that the office market has changed forever into a probability that the sector will recover within a year yields a very low figure. We could easily set the over/under mark at a 25% chance that the office sector will fully recover during 2022. Well, there is one rather well-informed individual who will take the over on that bet. Brett White, the CEO at Cushman & Wakefield, projects a “full recovery” for the office market by mid-2022.
“The situation remains fluid and the pandemic continues to disrupt the economy in certain parts of the world, but the commercial real estate sector has proven to be extremely resilient to every obstacle thrown its way,” according to White.
Acknowledging that the office sector still faces a challenging leasing environment, Cushman & Wakefield is seeing signs that office activity is picking-up in almost every market. Midyear 2021, Cushman & Wakefield put its money where its mouth is by entering into a partnership with WeWork, the temporary office and technology provider. Of course, this partnership may encourage Cushman & Wakefield to imagine a non-existent uptick in activity or it may provide early insight to an improving condition. Only time will tell which of these is true.
One thing that can be observed today is that most brokerage firms are reporting dramatic increases in their earnings and their expectations for future earnings. This result seems consistent with the theory that some real estate sectors are advancing and that the key players expect the other sectors to follow the growth pattern of these leaders. Albeit from a low point last year, brokers are reporting an increase in the number of office tours and longer terms on the leases that are being signed. I am not a gambler, but current evidence is building my confidence that the office sector will emerge from the pandemic fog and soon regain its stride.
