RealEstateNews 2.18.25

Weekly News Roundup

• Eldercare Turnaround
• Office Market Bouncing Back
• Impact of Hybrid Work

Eldercare Turnaround

Senior housing has been one of the biggest disappointments for commercial real-estate investors. Now thanks to millions of aging baby boomers, that may be about to change. The oldest boomers turn 80 in less than a year. And by 2030, the U.S. population 80 years and older is expected to increase by more than four million people to 18.8 million. History suggests that a growing number of people conclude at that milestone age they can no longer live comfortably or safely at home and seek a senior facility. Many will find themselves on a wait list. Development of senior housing nearly ground to a halt during the pandemic hasn’t picked up much.

The sector is expected to move from its former glut to a shortage in the next five years. More than 560,000 new units are needed to meet all the demand by 2030, but only 191,000 will be added at current development rates, according to data service NIC MAP. That means more seniors, especially those living on limited fixed incomes, will likely be priced out of senior housing or will have fewer housing options in the places they want to live, industry participants say. High interest rates and inflated building costs are leading most senior housing developers to avoid new construction. 

Developers remain unconvinced that the growing senior housing population will produce high enough occupancy and rent gains to justify breaking ground on new projects. For starters, Green Street says about half of seniors can’t afford private senior housing communities, which generally require residents to pay out-of-pocket and don’t accept third-party reimbursements. Developers say many of the projects that will break ground will be those that cater to the wealthiest seniors, sparing no expense on luxury design and fine dining, spas and educational programs. Source: Wall Street Journal

Office Market Bouncing Back

For many companies — and possibly the federal government — the era of remote work is drawing to a close. Employees at major companies like JPMorgan Chase and Amazon are being called back into the office five days a week. Under President Donald Trump’s administration, thousands of federal employees have been told to return to in-person work full-time — or submit their resignations. That may not be good news for workers who prize flexibility, but it has helped fuel a rebound in the commercial property market.

Demand for office space rose by nearly 40% between 2022 and 2024, according to a report last month from VTS, a commercial real estate management software. At this pace, VTS estimates that national office demand should rebound to pre-pandemic levels in the next four years. All of the cities measured by VTS experienced annual growth in office demand except Boston and Los Angeles. San Francisco, which saw its tech worker-heavy population decrease and suffered several high-profile retail closures in the years after the pandemic, saw a significant increase in demand, according to VTS. New York City is where the recovery has been strongest, with office demand nearly at pre-pandemic levels, according to VTS.

Rents for premium office space in New York are now at all-time highs, according to JLL, a global real estate and investment company. Class A buildings, which are newer, high-end offices often found in desirable neighborhoods, have seen the most significant demand. More often, employers are now seeking new, attractive office spaces with extra amenities like fitness centers and food courts to entice workers back into the office. But while most cities have largely avoided a doom cycle, roughly a fifth of all office space is still vacant, according to Trepp, a commercial real estate data company. Lesser-quality Class B and C buildings are still struggling. Source: CNN

Impact of Hybrid Work

The COVID-19 pandemic ushered in a new era of remote-work policies—and led to a drastic downturn in the demand for office space in the United States. Research by New York University’s Arpit Gupta, University of North Carolina’s Vrinda Mittal, and Columbia’s Stijn Van Nieuwerburgh finds that office occupancy in major US office markets tumbled by 90 percent from the end of February 2020 to the next month, as buildings emptied out. Occupancy rates recovered by the end of 2023, but were still at about half of their pre-pandemic levels.

The researchers find that office-space demand from 2019 to 2023 fell by about 41 percent for companies whose workers were expected to be in the office only one day per week—but by just 9 percent for those with staff onsite two to three days. And it grew by 1 percent for companies that expected to see employees four or five days per week. If hybrid work becomes the norm, their model implies that an additional day per week worked in the office reduces the decline in office values by 7 percent.  

A “flight to quality” helped newer office buildings with more amenities fare better, as their rents declined less than lower-quality buildings, or even increased. “This is consistent with the notion that firms need to improve office quality to induce workers to return to the office,” the researchers write. The overall decline in office values has serious implications in urban areas, they note, given that taxes from commercial real estate represent about 10 percent of overall tax revenue for the average city. Source: CBR