Life in America returns to “normal”, except for the office

Life in America is back to “normal” except for the office.

Travel and dining have come back strong, providing a vital boost to restaurants, hotels and businesses more than two years after the pandemic gripped the nation. The return has New York City expecting a 70% increase in domestic and international visitors this year compared to a year ago.

But as tourists flock in and more residents head out for the fun (see graphic), major city skylines from New York to San Francisco are still under a cloud of uncertainty due to remote working.

The return-to-office rate in New York was last pegged at nearly 40% and closer to 37.5% in San Francisco, which still trails the national average of just about 44%, according to the office occupancy tracking system in 10 cities of Kastle System. .

Travel, meals are back to “normal”, but the office isn’t even close

BofA Global, Kastle Systems, Transport Security Administrator, OpenTable

This has led to a disjointed outlook for commercial properties, where scarcity means households face high prices for housing, in addition to food and other necessities, while many office buildings are more than half empty.

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Effective multifamily rents rose 18.5% nationwide in the second quarter from a year ago, while New York City jumped 28% in the same streak” as more people have returned to the city, perhaps in anticipation of returning to the office after the pandemic,” BofA Global’s team led by Alan Todd, wrote in a weekly client note.

This contrasts with “signs of cracks in the office sector,” the team said, pointing to rising vacancy rates and falling office rents in New York and San Francisco.

Is the recession good for the office?

Todd’s team pegged the office vacancy rate at nearly 18% nationwide in the second quarter, with effective rents rising a modest 1.1% from a year earlier, even though rents headcount in New York and San Francisco remained negative overall.

Rent levels depend on an office building’s age and a property’s location in Manhattan or the Bay Area, with some pockets seeing positive rent growth each year but steeper declines in struggling financial districts, according to BofA.

It’s possible “that a large subset of the population is enjoying city life but may not necessarily want to work from a desk five days a week, and that office space will consolidate,” the team wrote. BofA.

Although with consumer inflation still high at 8.5% pa in July and recession fears on the radar, the BofA team also sees potential for a significant impact on travel and retail spending. in the coming months, particularly if an economic downturn turns into heavy job cuts. .

“Counterintuitively, higher quality properties in the office sector could actually benefit if recession fears take hold and the unemployment rate rises, as employers gain leverage to force employees back in the office,” they said.

To be sure, investors have been eyeing various outcomes in this unusual cycle. SPX Stocks,
+0.40%

DJIA,
+0.45%
have seen a huge rally in recent weeks, with some buyers accepting that signs of slowing inflation could signal a green light for equities. Others focused on the risks that the Federal Reserve could push the economy into a recession by raising rates too high, potentially forcing cuts in its key rates in 2023, which could lower longer-term rates. TMUBMUSD10Y,
2.781%
and borrowing costs.

Related: WeWork’s Adam Neumann Secures $350M in Funding for New Real Estate Company Flow

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