When business districts hollowed out at the height of the COVID-19 pandemic, and downtowns became ghost towns, a top-flight office building in a gateway city, filled with blue-chip financial clients, lost its lustre. Those assets, once the ideal institutional holding, suddenly became liabilities.

In cities such as San Francisco, workers have yet to return. It may well be they never will. Which raises the question: Does core mean core anymore?

Core real estate, by definition, should be the safest sliver of the commercial sector, delivering returns that outstrip bonds but are highly predictable thanks to high-quality tenants housed in the best locations. But the nature of the office market has changed, structurally, and core office assets are not delivering that year-in-year-out gain of 7 percent to 10 percent, guaranteed.

Office is “very, very oversupplied in many markets,” says Charlene Huang, managing director in Singapore for UBS Asset Management global re