US Office REITs Enter New Phase as Remote Work Era Nears Its End

UOB Kay Hian
09 October 2024

The U.S. Office Real Estate Investment Trust (REIT) sector is on the verge of a significant transformation as the era of remote work draws to a close. With businesses increasingly pushing for a return to the office, U.S. office REITs are poised to benefit from this shift. While the remote work trend has dominated much of the last few years, recent data shows that more companies are demanding a higher in-office presence from employees, signaling the beginning of a return to traditional office dynamics.

Remote Work Fatigue: A Shift Back to the Office

As hybrid work models evolve and more businesses move toward mandating in-office attendance, the demand for office space is expected to see a resurgence. The sentiment towards working from home is gradually waning as companies increasingly emphasize the need for collaboration, innovation, and productivity in an in-person environment. This return to the office culture is expected to drive occupancy rates higher, which could lead to better performance for U.S. office REITs.

Office Space Demand: Stabilization in Sight

The stabilization of office space demand comes at a crucial time for the U.S. office REIT sector. With vacancy rates having peaked during the height of the pandemic, there is now optimism that office space will start to be absorbed again as companies look for flexible spaces to accommodate returning employees. The sector has been waiting for this shift, and with improved leasing activity and renewals, U.S. office REITs could experience a positive turnaround in the coming quarters.

Listed Companies Poised to Benefit

Keppel Pacific Oak US REIT (KORE

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Keppel Pacific Oak US REIT, with a diversified portfolio of office properties in key U.S. markets, stands to gain from the resurgence in office space demand. The trust’s portfolio is well-positioned to attract tenants looking for flexible office spaces in a post-pandemic environment. As companies demand more collaboration and team-based environments, KORE’s properties could see an increase in leasing activity and rental income. UOB Kay Hian maintains a positive outlook for Keppel Pacific Oak US REIT, with expectations of growth as office space absorption increases.

Conclusion

The U.S. office REIT sector is entering a new phase of growth as the shift back to the office gains momentum. As more companies demand in-office attendance, the demand for office space is expected to stabilize and potentially grow, offering opportunities for REITs like Keppel Pacific Oak to capitalize on the shift. With vacancy rates expected to decline and leasing activity set to improve, the sector is poised for a recovery, making it an attractive area for investors to watch in the coming months.