The real estate office sector is such a volatile investment market.
I’ve never really liked the office market. It’s always unpredictable and believe me, I’ve seen so many people burnt by investing into this section.
The lure of strong returns tends to be the defining factor as to why people invest in the first place. An 8% yield is hard to resist for investors.
The two main problems are this:
1. When the office market is oversupplied, it’s oversupplied. To have a vacancy period of 6 months is not unusual.
2. Reselling on just the return. When buying, you need to always think about selling. The problem is that by selling on return, you need to have an attractive return to sell (unless to an owner occupier) and to have an attractive return – the price needs to be lowered as a result. Emotion which so often comes into play on the residential market, is simply not there. The scarcity factor is also limited.
Office space also has different grades. A, B and C grade are the normal classifications. ‘A’ class office space will improve the situation for the investor.
Articles like this point to the strength and potential. My thoughts are to still stay away in most cases.
One defining point is that society and work are becoming much more mobile. Companies are finding in easier (thanks to technology) to outsource many jobs overseas, keep staff working from smaller spaces and workers can be mobile out and about with clients. Also many new companies are electing to start a business remotely to cut overheads and leverage technology.
I’m not sure whether much of the planned office space to come has been clearly thought through.