How A Recession Could Impact The Office Sector

Interest rate hikes, the Federal Reserve, and a bear market — oh my. 

These have all become part of our economic reality as analysts continue to doomsday prep for a looming recession in the next 12 months.  

And perhaps no other industry has felt the burden of this uncertainty more than the real estate industry, particularly the office sector.   

Now, both tenants and building owners are taking precautions when it comes to future lease terms in an effort to alleviate any greater losses. 

“Firms are grappling with more strategic questions about how they leverage the office and how they incorporate remote working most effectively and efficiently into their model — but those are questions that transcend the risk of a recession, that transcend the short-term vagaries of a business cycle,” said Sam Chandan, director of the Center for Real Estate Finance Research at New York University’s Stern School of Business.   

Despite analysts agreeing that a recession is imminent, Chandan predicts that this won’t lead to a mass exodus of tenants from offices, nor will employers see a grand return to the workplace. 

Instead, office markets will see a bigger impact from evolving trends, such as demand for Class A space and a tightening labor market.  

Because of layoffs being conducted across some of the world’s largest companies, Chandan believes workers may return to the office to prove their commitment to their jobs. However, he doesn’t believe employers will use this as a method of bringing workers back to the office.