Swapnil Agarwal is the CEO of real estate firm Nitya Capital and Karya Property Management as well as the Founder of non-profit Karya Kares.
Mark Twain once said, “Buy land; they’re not making it anymore.” For years, many people thought of real estate as a haven for investments. However, during the 2008 financial crisis and now during the economic uncertainty associated with the Covid-19 pandemic, some people have questioned that belief. With a portion of the workforce staying home, the demand for commercial office space has decreased and properties have been devalued. But I believe that the pandemic’s effects on commercial office real estate will ultimately be short term in nature and that it can be a valuable investment if you take a long-term perspective.
As a professional real estate investor, I’ve compiled a list of three reasons commercial office properties can transcend economic uncertainty as a long-term investment.
1. It Can Pay In Dividends
Like any investment, commercial office real estate inherently has risks. But it has one major reward in the form of potentially considerable monthly cash flow. In addition to any capital gains you may receive when you sell the office property, you can regularly get cash in your pocket just for owning and maintaining the asset.
2. It Can Benefit You In The Long Term
Right now, many people may be fearful of investing in commercial office real estate because of uncertainty around how long the shift to working from home will last. However, in what might be considered a contrarian view, I believe this is the time to buy commercial assets.
Based on my experiences, I feel that commercial office real estate has the real potential to grow beyond its current limitations and rise above the grip of the Covid-19 pandemic, especially in terms of investing. I strongly believe that once enough people have been vaccinated and the dangers of Covid-19 have lessened, many people will return to working in offices.
Working from home on such a large scale likely won’t be feasible forever. Humans have a natural need to connect with others, and with the shift to remote work, our ability to do that face to face in the workplace has been severed. Office spaces are all about the buzz of human communication. Many great ideas come from steady collaboration and unplanned hallway discussions that simply cannot be replicated on platforms like Zoom.
There’s also the issue of productivity: While some studies have shown that workers’ productivity has remained the same or even increased while working from home during the pandemic, others have found that it’s declined.
There’s a lot of uncertainty right now when it comes to commercial office real estate, especially for investors. However, I think life will eventually go back to normal. And just as the saying goes: Buy low, sell high.
Investments are never guaranteed wins, but I strongly believe in the resilience of the commercial real estate sector and the future wins we will see from investing in this asset today. The pandemic is temporary; the work-from-home shift isn’t likely to last forever.
3. It Helps You Diversify
Traditionally, many retail investors think of their portfolios in terms of stocks and bonds. Today, there are endless opportunities to diversify your portfolio into other assets, like real estate.
Investing in commercial office real estate has the advantage of serving as a hedge against the unpredictable nature of the stock market, as well as benefiting from comparably longer lease contracts with tenants than one would find in residential real estate.
The Potential For Rebuilding
At this very moment, we are standing on the precipice of striking new medical developments that will help us tackle the Covid-19 threat. To write off the future of commercial office real estate from here would be erroneous as it discounts the gradual depletion of public and investor risk perceptions over time. Once the threat has significantly diminished, I envision demand for office space returning with vigor as workers return to the office environment.
I think there’s a definite chance of overall workplace approaches shifting in response to the pandemic, with working from home becoming more commonplace. According to the McKinsey Global Institute, “more than 20 percent of the global workforce could work the majority of its time away from the office — and be just as effective.” There’s no doubt that this pandemic has caused a substantial amount of changes for us all, including investors looking for their piece of the commercial office real estate pie. That said, even with fundamental shifts in working approaches taking place, I feel that both price compression and the decrease in worker apprehension will boost the reemergence of commercial office space within the real estate investing market.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.