There's a saying, “Be greedy when others are fearful, be fearful when others are greedy”, and it's very clear that the market is very fearful of offices right now, but very greedy with the broader market(especially AI). Many office REITs are trading for pennies on the dollar, at 1-2X their annual cash flows, meanwhile the S&P500 P/E ratio is about 30.
While the pandemic did temporarily reduce office demand due to work from home, most organizations are forcing employees back to the office at least part time.
As a result of the work from home trend, construction of new offices has stalled, and some offices have been converted to other uses such as mixed use/residential. So supply of offices is stagnating, while demand is stabilizing. The only reason vacancy is growing is because tenants with 5-10 year leases are not renewing based on decreases in utilization that happened in 2020. But as the last of these leases signed pre-2020 expire, vacancies should stop increasing.
The crazy think is office rents don't even have to climb to make a ton of money on this. You can literally just buy a REIT with a 50% FFO yield, and it pays for itself in 2 years.
The main key is to find REITs that are trading at a low Price/FFO, and that have low amounts of debt. Then calculate how much their revenues would need to decline for the investment to fail.
The math is quite staggering, a lot of these REITs appear to be priced on the assumption that they will lose 70-80% of their tenants within the next 5 years, will be unable to find new ones, won't be able to sell the property, and that interest rates will remain elevated. I just don't see that being likely unless we have a great-depression level economic event, or another major shift in workplace culture where WFH becomes the standard again.
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