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Has the office sector hit its price floor? REITs, leading cycle indicators, and wealth building opportunities in commercial real estate

An article caught my attention in the AFR (Australian Financial Review) a few days ago, suggesting that the office sector has hit its price floor.

Office price discounts

Source: AFR

Major CBD office towers are selling at 20 per cent discounts to their peak value, the best evidence yet that the correction in Australia’s office market is nearing the bottom.
“We’re close to the bottom and these transactions will be the benchmark to set pricing for the next 12 months. We’re pretty close to where we need to be,”
“We’re probably within 5 to 10 per cent of the trough for premium and secondary buildings. There’s not much left [to go)],” …
“The valuers are letting the air out of the tyres. We’re pretty close to letting enough air out and getting back to race ready.”…


Certainty, the work-from-home cultural shift following COVID has had a dramatic and devastating impact on office markets both here and overseas.


I’d also argue that - whilst the timing is still on track - the impact on markets, has disrupted this Land Cycle like no other in recent history.


Something I’ll discuss further in next week’s interview with U.K economist Akhil Patel.


As it is, despite companies pushing to get workers back into office, it’s unlikely to ever return to what it was pre-pandemic.

Work-From-Home Trends

Source: AFR


The push to get workers back into the office has stalled, new data suggests, as most white-collar workers settle into a routine of coming into the office no more than three days a week.
Some employers are still trying to boost their office attendance by redesigning their workplaces, setting mandatory in-office days and even rewarding staff who come in more than three days a week with extra annual leave.
But, for the most part, employers appear to have accepted that most office workers are unlikely to return to pre-pandemic ways of working. Instead, the focus has shifted to ironing out the wrinkles in today’s new hybrid normal.

We put a lot of emphasis on the residential market when analysing the land cycle.


However, historically, the commercial real estate booms and busts have been far more severe.


The commercial real estate downturn in the 1990s for example, was a major event.

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