Commercial real estate subleasing is overflowing-
This is not surprising as more people work from home. Some companies are making these changes permanent-
Even though the economy rebounds, commercial real estate may still be struggling…
And a commercial real estate crisis may come- I am sure that the Fed will come and rescue.
Now the bigger question what can be done to save these excess commercial real estate?
First, commercial real estate use office sharing like WeWork. Not everyone wants to work from home or works well at home. So some office space can be used through office sharing.
Second, some commercial real estate can be turned into delivery fulfillment centers given their prime locations. Amazon, Wal-Mart, and other retailers will surely take some space to make their deliveries more efficient. Imagine leasing some space at the Empire State building, they could more easily cover Manhattan, saving costs and time.
Third, some space can be turned into housing. I have seen some office buildings being repurposed. I am not familiar with the regulatory process but I can see some firms repurposing some office space to housing.
Finally, longer term investors such as Blackstone or other private equity firms will pick up great office buildings and play the longer term game. Expect more building sales soon-
Overall, it is bad that commercial real estate is getting a hit but then again SF and NYC were wayyy too hot for many years- Finally, the bubble is bursting. However, it is not the end of the world, prime office space will still be valued and those who have longer term horizon may get good returns investing in them now (e.g. Blackstone). Personally, I like housing REITs (BRG, BRT, and IRT) and mortgage REITs (AGNC, ARR, NRZ, and ORC) for now as they have more catalyst. But will definitely keep an eye on REITs with premium office space.
Thank You Jesus for a blessed day. Let us always be thankful and give You all the glory Amen!
Rejoice at all times. Pray without ceasing. Give thanks in every circumstance, for this is God’s will for you in Christ Jesus.
1 Thessalonians 5: 16-18
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