Office REITs: Coronavirus Killed Corporate Culture

• Office REITs have been pummeled during the coronavirus pandemic amid mounting questions over the long-term demand outlook as businesses become increasingly more comfortable with “remote work” environments.

• Move aside WeWork. Zoom and "work-from-home" technology suites have emerged as the bigger competitive threat to the office REIT sector as more-than-half of companies expect to shrink their physical footprint.

• WeWork was far more "friend than foe" to office landlords. The apparent demise of the co-working business model removes a significant chunk of incremental office leasing demand.

• The near-term outlook remains relatively steady, however, as Office REITs reported little difficult collecting rent. 92% of office tenants paid their rent, allowing all-but-one office REIT to maintain their dividends.

• We remain bearish on the office REIT sector amid a weakening long-term demand outlook and a significant pipeline of supply growth and see better opportunities elsewhere in the REIT sector.

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