ISA Focus: Revisiting the future of office
The balance of virtual and in-person interaction is close to a post-pandemic steady state. So we observed in our ISA Outlook 2023, where we called this out as one of our key global themes for the year. We pointed out that after a long period of gradual improvement in office attendance, the rate of change has substantially leveled off, with weekly office visits stabilizing below 50% in many US markets, and at somewhat higher levels in Europe and substantially higher levels in much of Asia-Pacific. In many markets, but especially North America, work-from-home (WFH) headwinds have hit leasing demand as leases roll. An anticipated boost from permanent social distancing failed to materialize. At the same time, the cyclical outlook for job growth has weakened with the macroeconomy. These factors have contributed to deepening worries about the prospects for office values, which have made front-page news due to prominent defaults on commercial mortgages backed by office assets. In this context, we thought it important to revisit the prospects for the office sector, addressing key questions, while highlighting differences and similarities among global markets. Where are risks greatest and where are they less? How should we think about the role of office in the portfolio? How will current trends play out in the various regions where we invest? This is also an opportunity to look back on our predictions to assess where we got things right, and where we did not. As a part of this, we introduce a new feature in our ISA suite, “Looking Back”, in which we check on our prior predictions and forecasts. Contributors: Brian Klinksiek Global Head of Research and Strategy Chris Psaras Senior Strategist, European Research and Strategy Dennis Wong Senior Strategist, Asia Pacific Research and Strategy Heidi Hannah Senior Vice President, Americas Research and Strategy