Back-to-office Delays Should Not Adversely Affect Office REITs, Fitch Ratings Forecasts

Originally published on August 17, 2021, by Michael Tucker for Mortgage Bankers Association.

Fitch Ratings, New York, said long-term office leasing plans will not likely be affected even if U.S. corporations continue to delay their return-to-office plans.

But Fitch said it expects longer-term, secular headwinds related to flexible work and demographics to pressure office fundamentals, including occupancy rates and net effective rents. These headwinds could result in “uninspiring, below-average occupancy gains and net effective rent growth during the next upcycle for many-core U.S. markets,” it said in a report.

“Temporary return-to-office delays are not driving lease terminations or a material shrinkage of office occupier space needs,” Fitch said. “The recovery of income generated from ancillary services such as employee parking and other amenities will be further delayed but is not a material credit effect. Most companies are planning to return employees to the office full time or transition to a hybrid work structure with physical office space needs that result in an improved work environment, despite successful work-from-home arrangements during the pandemic.”

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