Office Conversion Crisis: Prices Must Be Cut In Half For Residential Shift, Says Goldman Sachs
Portfolio Pulse from Piero Cingari
Goldman Sachs economists report that the listing prices of struggling office properties must fall by nearly half for conversion into multifamily homes to be economically viable, due to a significant reduction in demand for office space. The office vacancy rate has risen to 13.5%, the highest since 2000, with a forecasted increase to 18% over the next decade. Approximately 4% of U.S. office buildings are considered potentially obsolete. Despite a drop in transaction prices, a further decrease is needed for feasible conversion. The VanEck Office and Commercial REIT ETF (NYSE:DESK) has seen a 21% price increase from October 2023 lows, despite the overall market challenges.
February 27, 2024 | 4:03 pm
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The VanEck Office and Commercial REIT ETF (DESK) has experienced a 21% price increase from its October 2023 lows, despite a nearly 10% drop since the beginning of the year, reflecting the complex dynamics in the commercial real estate market.
The increase in DESK's price despite the broader challenges in the commercial real estate market suggests a relative stability or optimism among investors regarding the future of office real estate investments. This could be due to the potential for repurposing underutilized office spaces or adjustments in office mortgages by lenders, which may mitigate immediate negative impacts on the sector.
CONFIDENCE 85
IMPORTANCE 75
RELEVANCE 90