Report: The COVID-19 recession least damaging of all office sector busts over past 50 years
- September 1, 2022: Vol. 9, Number 8

Report: The COVID-19 recession least damaging of all office sector busts over past 50 years

by Moody’s Analytics

A two-year onslaught of gloomy, sometimes hyperbolic headlines about the future of office and cities could give casual observers the impression that urban areas are on a course to become post-apocalyptic ghost towns, with property values in steep decline. The pandemic has spurred existential dread about the office sector, with fierce debate over how remote working will impact office demand, property values and the economic viability of urban city centers.

However, doomsday headlines are at odds with empirical office performance and leasing data relative to past downcycles. At this stage, two years beyond the 2020 recession, the current downturn for offices looks historically benign.

Bearish views on offices have primarily relied on cherry-picked anecdotes, informal surveys, low levels of office utilization (before many companies’ official “return-to-office”), and widely divergent assumptions on how much less office space tenants may lease per each partial-remote worker. Meanwhile, the real revenue impact of the COVID-19 recession has been the least damaging of all the booms and busts the office sector has endured over the past 50 years. So, while net office demand may or may not slip as firms gradually rationalize their office space needs for post-COVID workforces, there are simply no clear signals that we are in the throes of an “office apocalypse.”

Consider that U.S. office rent and occupancy rate declines following the 2020 recession are far less than the past three cycles. Many office markets mounted strong comebacks in 2021 despite uncertainty of future office space usage. New York and San Francisco offices, among the hardest hit by the pandemic, have office rent and occupancy declines that look minor compared to past cycles. Conventional wisdom is that class A offices will fare better if there are fewer tenants to compete for, but that performance bifurcation has not broadly materialized yet in space market data.

What’s more:

  • Total returns for institutional office investors took a minimal hit in the pandemic downturn, dipping slightly negative only in the third quarter of 2020.
  • Office loan delinquency rates never spiked through the pandemic. Despite some very modest increase in delinquencies in 2022, along with a handful of office loans liquidated at a high loss severity, the office loan delinquency rate is as low as it’s been since just before the 2008 financial crisis took hold.
  • Other data beyond fundamental real estate performance metrics also shows no clear trends of exodus from the office. Measurable clarity will take some years, as firms first resolve workforce management challenges and leases expire.

In summary, there are not yet any signs of a broad exodus from offices or imminently cratering property values. There are certainly individual data points to build a case for or against the hypothesized mass exodus, but no significant trends clearly support the argument for a sustained, dramatic decline in overall office occupancy, revenue or value.


This article was excerpted from the Moody’s Analytics report titled Compared to Past Cycles, How Bad Has the Pandemic Been for Offices? Download the full report at this link:


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