Young Employees Returning To Office May Spur Comeback In Office Investment Values

The crush of high-interest rates, decreasing availability of lending capital and what many believe is a looming recession could drop investment volume in the commercial real estate space by 15% in 2023. 

According to new survey data from CBRE Group, 60% of respondents said they’ll purchase less real estate in 2023. Many point to office space, with workers not returning after the pandemic, as a significant factor in decreased investment, but that tide could change. According to the head of investments for financial technology company Cadre, the threat of a recession may contribute to returning employees to the office. 

“Some jobs are going to maintain a remote status, but with a recession coming, there’s going to be a real power shift from the employee to the employer. I think we’ll see employees returning to the office as much as four days a week,” Cadre Chief Investment Officer Dan Rosenbloom told Benzinga. He added that the threat of rough economic conditions would also mean a more competitive environment for job-seekers.

Rosenbloom also believes that younger employees need to take advantage of being back in an office again — not just for job security but to learn the business they’re working in. 

“I look back at my career and believe the employees who benefit most from going back to the office are those in their 20s who need to learn,” he said. “You drive a lot of value as a 20-something young professional being in the office and collaborating. Businesses are just more efficient with people in the office.” 

With investment in office sectors waning, office-to-apartment conversions hit record numbers over the last two years. Cadre recently announced the sale of an office portfolio in Colorado Springs, Colorado, comprised of four office parks. The company’s investment in the portfolio generated a 28.1% realized net return for its investors. 

But Rosenbloom says there’s hope long-term for an office space rebound. “If you look at city centers and study the history of pandemics, employees leave and then come back stronger than before.” 

But for a rebound to happen, those leasing office space need to fight the impulse to shorten leases, he said. “Office leases cannot get smaller. One- to two-year leases make no sense, long term.”

To provide a solution, Cadre and its partners are building out smaller, 2,000-square-foot to 3,000-square-foot “spec suites” where the office space investor invests in carpet, furniture, paint and lights, allowing shorter-term lease clients to move in immediately. 

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“Tenants now just don’t want to build out their own space. Investors are doing these spec suites with shorter duration leases where we can reuse the capital. If you’re building out office space for a specific tenant and they blow out in a few years, it doesn’t work. We can do these leases for two to four years and are doing it across the country.”

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