Work From Home Has Hit Office Real Estate The Hardest In These 5 US Cities

Author: Hayden Buckfire | July 30, 2024 08:59am

The COVID-19 pandemic accelerated a trend of workers preferring remote work to in-person office attendance.

Meanwhile, commercial real estate across the U.S. has suffered as companies do not value expansive office spaces as they did before.

The Data: A post on X relayed data from Arbor Data Science.

The commercial real estate crisis is spreading:

US office vacancy rates in San Francisco reached 25.4% in June, the most among major American metros.

This is followed by Houston and Seattle where office vacancy rates are 23.8% and 23.2%.

The lowest vacancy rates are still a… pic.twitter.com/TzeveqJV0N

— The Kobeissi Letter (@KobeissiLetter) July 29, 2024

• San Francisco, California — 25.4%
• Houston, Texas — 23.8%
• Seattle, Washington — 23.2%
• Austin, Texas — 22.9%
• Denver, Colorado — 22.1%

San Francisco’s Bay Area, which includes Silicon Valley, is the heart of technology companies in the U.S. A 25.4% vacancy rate is much higher than its 9.3% median vacancy rate from 1997 to 2013 (as found in a 2014 Journal of Real Estate Portfolio Management article).

Meanwhile, the bottom five cities have weathered the storm comparatively well.

• Miami, Florida — 12%
• Boston, Massachusetts — 12.8%
• Tampa, Florida — 13.3%
• Charlotte, North Carolina — 14.9%
• Philadelphia, Pennsylvania — 15.3%

The U.S. overall office space vacancy rate crossed 20% for the first time in 2024’s second quarter, according to Moody’s.

Market Implications: REITs with commercial real estate holdings have by and large struggled since the onset of the pandemic:

• Alexandria Real Estate Equities Inc (NYSE:ARE) is the largest office REIT by market cap. It owns properties in San Francisco and Boston, among other locations. Its share price is down over 18% in the past five years.
• BXP Inc (NYSE:BXP), formerly Boston Properties, owns buildings in Boston, San Francisco and Seattle. Its share price is down 45% in the past five years.
• Hudson Pacific Properties, Inc. (NYSE:HPP) owns properties on the West Coast with exposure to San Francisco and Seattle. Its market capitalization is 83% less than it was five years ago.
• Cousins Properties Inc (NYSE:CUZ) owns properties in Austin, Charlotte and Tampa, among other locations. Cousins shares are trading nearly 20% lower now than five years ago.
• Kilroy Realty Corporation (NYSE:KRC) owns office buildings in San Francisco and Austin. Its share are trading over 50% lower than five years ago.

Several exchange-traded funds (ETFs) track the real estate industry with some exposure to office REITs, including:

• The Vanguard Real Estate Index Fund ETF (NYSE:VNQ)
• The Schwab US REIT ETF (NYSE:SCHH)
• The Real Estate Select Sector SPDR Fund (NYSE:XLRE)

These funds have fared better than the individual office REITs due to their diversification.

Now Read:

• Why Fitch Thinks The Coming Commercial Real Estate Crash Could Be Worse Than 2008

Posted In: ARE BXP CUZ HPP KRC SCHH VNQ XLRE