Office-loan delinquencies surged to a five-year high in 2023. The rise of remote work has called the future of the office into question. However, there has also been a push for many employees to return. What can investors expect in 2024 and beyond? Let’s jump in.
The COVID-19 pandemic may be in the rear-view mirror, but the knock-on effects of the generational health crisis are still being felt today. When the severity of the pandemic became apparent in March 2020, non-essential workplaces shut their doors and millions upon millions of workers found themselves at home carrying out their daily tasks. This also gave rise to applications like Zoom and Microsoft Teams, which allowed workers to quickly connect via video calls.
Many employees have returned to the office since the mass vaccination drive in 2021 put fears of the virus mostly to bed. However, there are still many workers who have found a great liking to the new way of doing things. Companies have taken notice, and many are offering hybrid and/or fully remote positions depending on the job title.
Unsurprisingly, this new paradigm has not been favourable to companies that rely on revenues generated from office real estate. The rate of office loans at least 60 days past due rose to 5.28% in November compared to 5.14% in October, according to data from Moody’s. Delinquencies are expected to increase are borrowers financed properties at low rates and now face higher borrowing costs due to a wave of maturities.
Investors should keep an eye on stocks like Piedmont Office Realty Trust (NYSE:PDM) for the months and quarters ahead. This company owns, manages, develops, redevelops, and operates high-quality, Class A office properties primarily in major U.S. Its shares have dropped 25% year-over-year as of close on Wednesday, January 3, 2024.
