The office market in real estate was booming and profitable – until two years back, when everything changed almost overnight. The pandemic and global economy has reshaped every industry, of course, and real estate is no different.
The office market has seen both winners and losers. But as people slowly adapt to the new normal, the year ahead brings much more hope for property investment in office space, and to the investors who are looking for new ways to diversify their real estate portfolio.
So, let’s deep dive into the office market for investors.
What is the Office Market Outlook For 2022?
Since the pandemic challenged the global business scene two years ago, office renters’ habits have changed. Most people had to abandon their offices and start working from home. This decision reshaped the office market outlook significantly for investors.
- Would there be any more use for – or income from – offices?
- Might people vote with their feet and continue the Great Resignation, or at least refuse to go back to work full time in an office?
- Would the office rental market die?
This would be the worst-case scenario. However, many businesses have been building new ways of working to adapt to the new normal. They’re now allowing various forms of hybrid working – although this does bring an ensuing need for less, but not no, office space per business. One way out of this is for businesses to share premises, of course.
The good news, though, is that because many employees are now able to use hybrid working models, the office market is at least looking stable for the foreseeable future.
So, as an investor, it’s still a good time to enter – or re-enter – the real estate market in terms of office space, and decide how it can benefit you long term. But take note of these trends before making your decisions.
Trends That Will Affect the Office Market in 2022
If you stay aware of how trends affect the office property market going forward, you can work out how to make the most of your investment. We offer three trends and guidelines here.
Trend 1: Release of Pent-Up Demand.
Now that people are able to go back to their normal routine and the global economy is recovering, reports show that there will be a surge in demand for office spaces that’s due to the pent-up need for businesses to have structured spaces to increase productivity post-pandemic and focus on tasks communally.
This is good news. Take time to seek the best investment for you among the new opportunities springing up.
Trend 2: Tenants Seeking More Innovative Spaces
Modern office spaces have shifted and changed to become ones that boost employees’ creativity and collaboration. This was happening even before the pandemic as office culture changed to address new business challenges.
For this reason, you should look to invest in buildings designed to boost creativity, productivity, agility, and ease of working together. Avoid old-fashioned office accommodation that may not be easily rented out in the future.
Trend 3: Increased Competition
Investors looking to enter the office market need to consider existing industry competition. Many investors are looking to increase their tenants and leasing rate by providing superior, or more suitable, accommodation for businesses.
For this reason, you will need to identify your competitive advantage. Maybe the offices you invest in will have environmentally friendly running costs. Or maybe you can offer an up-market space for business conferences that need to happen in person.
So, identify the opportunities in the growing demand for office space and be sure you can individualize yourself from the competition to satisfy your would-be renters. Having said that, investing in passive real estate (i.e. rental properties/offices for businesses) is often a good way forward.
Watch Out For These Issues
Before you see the trends and make an investment, be sure you also follow the rules and understand the risks involved. Some of the issues to look out for in the coming year include:
- Economic and financial issues. As the global economy rebounds, how will this affect your local real estate market? Changes in the job market affect employer-employee relationships and therefore what should or should not go in your investment portfolio.
- Social and political issues. Changing policies and laws that aim to improve the wellbeing of people will inevitably affect the kind of office property you should invest in.
- Real estate and development issues. Make sure that you understand any new laws relevant to your choice for real estate investment in the office market.
What to Do for Long-Term Success in Office Market Investment
1 Do Your Due Diligence
In order not to have regrets later, take time to research the market before buying an office property. Success requires a long-term outlook. Approach the market in a business-like way with caution, considering all the factors that may increase the risk of failure. Check for favorable conditions like
- location: maybe in newly favored market areas
- building type: structure, eco-friendliness, etc.
- possible tenant types: growing businesses, for example.
2 Understand the Market
Linked to the above point, before committing to anything, consider whether the market environment is good. You need to know what constitutes a favorable market environment for real estate investing. Factors that can affect the demand for office spaces include:
- employment trends,
- costs of doing business in that area, and
- population growth.
The office market space is bound to change again in a few years.
As we’ve already said, the only way to be sure of your investment is to closely monitor trends, changes, and key factors that drive the office market. Seeing the present surging demand is not enough reason to invest impetuously!
If you’d like help to decide when and where to invest, we, at RCP, would be happy to become your private real estate investment partner with a proven track record of creating value for clients.