US Office Market: Recovery From Pandemic Slump

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Flexible-office operators suffered during the early part of the pandemic, in part because their short-term leases were easier to exit than traditional office leases.

However, many companies are embracing hybrid-work schedules when sending their employees back to the office. This is increasing demand for offices and meeting rooms, especially for those with flexible, short-term booking options.

In Jan-22, property brokerage JLL reported that the US office market registered positive net absorption for the first time since the onset of COVID during the fourth quarter of 2021.

Figure 1 (below) shows the consensus aggregates and current credit distribution for US Industrial and Office REITs compared with Global Real Estate Investment & Services and Global REITs (which includes Industrial & Office REITs companies).

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Figure 1: Credit Trend and Current Credit Distribution

By Dec-20, US Industrial and Office REITs credit risk had increased by over 15%, due to COVID. However, it was impacted by COVID less and recovered sooner than Global Real Estate Investment & Services and Global REITs. Today, US Industrial and Office REITs has almost fully recovered from COVID.

Over 92% of US Industrial and Office REITs companies are IG rated, this is compared to 54% for Global Real Estate Investment & Services and 65% for Global REITs.

Figure 2 shows a detailed credit trend for Corporate Office Properties, L.P., a US real estate investment trust that owns, manages, leases, develops, and selectively acquires office and data centre properties.

Figure 2: Corporate Office Properties, L.P.

Diversified Healthcare Trust is a US REIT with a $6.6 billion investment portfolio which has been on the Credit Benchmark Watch List since April 2021. For a detailed credit consensus report on Diversified Healthcare Trust, please download using the below form. Custom credit consensus reports are also available on request:

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    Credit Benchmark brings together internal credit risk views from over 40 leading global financial institutions. The contributions are anonymized, aggregated, and published in the form of consensus ratings and aggregate analytics to provide an independent, real-world perspective of credit risk. Risk and investment professionals at banks, insurance companies, asset managers and other financial firms use the data for insights into the unrated, monitoring and alerting within their portfolios, benchmarking, assessing and analyzing trends, and fulfilling regulatory requirements and capital.