Is The “Office” Asset Class Still A Good Investment?
Caleb Parker
Creating the office of the future, today. Award winning Podcast Host of The Caleb Parker Show & Misfits Mindset
Foreshadowing the capital stack evolution
?"A lot of office owners and operators are already in a tough spot and adding fuel to that fire is the coming recession and the interest rates that might be dragging us there. So I think everyone is looking at this and everyone in the world is thinking about it."
- Franco Faraudo
I think we can all agree there is concern with the economic volatility right now, especially as interest rates rise.
But how does this affect investing in the "office" asset class?
Rising rates increase the cost of capital, which puts pressure on the office development business plan. There is a growing trend of companies wanting flexibility in contractual commitments, but typical valuation methodologies do not recognize revenue not contained within long lease contracts. What about all these companies reducing their office real estate footprints, which is expected to continue over the next few years as rightsizing and the flight to quality takes place. (I wrote about that here)
Unpacking These Issues
I read an article in Propmodo recently that addressed some of these issues and thought this needs to be shared far and wide. So I invited Propmodo cofounder and Editor, Franco Faraudo to join me for a chat and unpack some of the points in this piece he wrote.
In this episode, Franco tells us how rising interest rates will affect office real estate specifically. We go on to discuss how the increasing cost of capital may shake up the capital stack for “the office”. You’re going to hear why lenders may not have the same appetite for offices, how investor profiles may evolve, why a valuation pullback is expected and whether a valuation reset is imminent.?
Naturally I used this opportunity to find out whether Space-as-a-Service could be the unsung hero for the office.
Tap here to open and listen to the full episode in your podcast app.
And if you’re not already a subscriber to Propmodo, this episode should convince you to signup today.
If you have any questions or feedback on this episode, email?[email protected]
Value Bombs:
?A lot of office owners and operators are already in a tough spot and adding fuel to that fire is the coming recession and the interest rates that might be dragging us there. So I think everyone is looking at this and everyone in the world is thinking about it - Franco
For a lot of companies going forward, if you have a flexible space in the same building as a company has their traditional lease space, that can give them a bit of peace of mind - Franco
There's not a lot of good data surrounding flex spaces which makes them less appealing for lenders - Franco
For your own social media and also for your business, if all you're doing is just shilling your expertise or your product, you're kind of doing social media wrong - Franco
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Timestamps:?
[6:21] Are rising interest rates going to negatively affect office real estate?
领英推荐
[6:58] Rising interest rates are one of the main issues facing the property industry today.
[8:18] Interest rates have been low for a long time, why are they causing an issue now?
[11:23] How the cost of debt impacts business plans in real estate.
[15:18] Is the capital out there capable of offsetting the cost of debt?
[16:52] The lenders appetite for loans in office buildings.
[19:57] How the capital stack of the real estate business is going to evolve.
[23:28] The effect of a long lease on the valuation of a building.
[26:15] Can the current financial climate benefit the office market?
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Resources:
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Shoutouts:?
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About Franco Faraudo:
Franco Faraudo has an MBA in entrepreneurship and has worked with a wide spectrum of technology and real estate organisations on their branding and content strategy. He has worked in real estate as an agent, manager, and investor. He writes about the intersection between the physical and digital world and is Co-founder and Editor of Propmodo.
Sponsors
Headline Sponsor: TSK
TSK creates inspiring workplaces for some of the world’s biggest brands across the UK and Ireland. They've been working for 25 years to deliver the best employee experiences and the vision of their clients. Not only do they create great places to work, TSK share workplace content every week from the latest data to inspiring spaces they’ve designed and built. You can read their latest insights at?www.tskgroup.co.uk?or check out their?LinkedIn?and?Instagram?pages to become a follower, fan and friend.
TSK publish weekly thought leadership, research and content featuring their team, clients and partners about workplace, commercial interiors, hybrid working and how others have prospered from investing in workplace. You can check their latest publications and video content in the show notes by signing up to their weekly?‘work made better’ newsletter?or visit?tskgroup.co.uk.
Fortune Favours the Bold
Bold merges property management & Space-as-a-Service to help office customers grow faster and drive asset value. Bold is a real estate brand owned and operated by NewFlex (www.workbold.co)?
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M.Sc. (Eng) | Business Developer | Built Environment Generalist | Communications & Relations | Market Development & Growth | Workplace Strategy & Advisory, Culture & Change | Speaker & Edutainer | Worklife Philosopher
2 年Controversial opinion, straight out of ????sauna: "Dishwashers make for great cabinet space - and every household should have two of them". It will save you both time and space: One for dirty, one for clean. Eliminate the logistical phase of emptying the dishwasher to put stuff up, and the extra cabinet space for intermittent storing. Go lean. Just move dishes between table and washer. That's it. Simple. (Also, with rising inflation, they now will keep their value better as fixed assets???)
Operational real estate and value add investing at Swiss Life Asset Managers UK
2 年Great episode Caleb Parker. Highlighted to me the opportunities for nimble investors to take advantage over the next part of the cycle as asset prices depress and the valuers/lenders get to grips with #spaceasaservice. My take is that they understand well granular, operational income in hotels, self storage etc so no reason why offices will be any different once stabilised NOI evidence is there
Executive Director - Property Underwriting Group at Wells Fargo Bank N.A.
2 年Thanks Caleb Parker Always an interesting and engaging listen and truly a question which we as lenders should be thinking very hard about........to which I'm sure the answer is yes, no and maybe. The devil is in the detail as always!
Head of Property Research at Canada Life Asset Management
2 年The sounds a great episode. I’ll be sure to check it out!
Delivering change in real estate - Challenging established thinking - Flex space and Proptech enthusiast - Radio networks enabler - Portfolio and workplace transformer
2 年I know you’ll agree, but one way to make it a better investment is to deliver a far fuller service within it. This means buildings with great amenities, flex space options and shared spaces, as well of course as great connectivity - both in and around the building (this means not just coverage but also capacity and resilience for both voice and data).