Alex Pettee, CFA
Office REITs: Always Sunnier In The Sunbelt
Work from Home Forever? The long-delayed 'return to the office' has been postponed yet again by another wave of the pandemic, but office demand has been stronger than many assume.
The office REIT outlook has brightened in recent months - particularly for REITs focused on business-friendly Sunbelt regions - following solid earnings results, favorable leasing trends, and strong comparable pricing.
Eighteen months after "two weeks to slow the spread," office utilization rates have recovered only a fraction of pre-COVID levels in the dense coastal "shutdown cities" with longer transit-heavy commutes.
One of the most pro-cyclical REIT sectors, we believe that investors should look to tactically allocate to office REITs focused on markets with the strongest working-age population growth, primarily in the Sunbelt.
A "new normal" on several levels, office REITs - which historically traded at persistent premiums to their REIT peers - have become relative "value plays" in the post-pandemic era while dividend yields have swelled.