Manulife US REIT Webinar Updates: "What lies on the horizon for U.S. office?"

For those who are unable to attend the Manulife US REIT (“MUST”) webinar on 12 July 2023, please see below key highlights with two seasoned researchers from JLL, Scott Homa and Jacob Rowden, discussing on the US office sector outlook as well as insights into how the cities that MUST's properties are located in are performing:

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Dear Media,

Here are three key takeaways we had from yesterday’s ‘MUST Insights: What lies on the horizon for U.S. office?’ webinar, conducted in conjunction with JLL.

Takeaway #1: When will U.S. office recover?

It’s not so much a question of timing as it is of asset quality. With flight to quality, trophy and Class A buildings that were completed recently continue to see strong leasing volume and rental growth. Building quality will be a major driver of office recovery going forward. In addition, an end to interest rate hikes, stabilising loan spreads, clarity on hybrid work’s impact on office demand, and dwindling office supply due to demolishment, conversions and a delay in new construction will help to fuel this recovery.

Takeaway #2: How can we expect office valuations to move this year?

 

U.S. REIT valuations have seen a ~30% decline from their peak. Asset valuations, on the other hand, are hard to generalise with limited data points in the market. Still, there is healthy investor appetite for the top tier of office assets, while some distressed assets have had their valuations beaten down due to several anchor tenant departures and deferred capital expenditure. Valuation movements are highly situational based on specific assets in each micro-market.  

 

Takeaway #3: When will U.S. employees return to the office?

Return-to-office mandates will cumulatively impact ~2.2 million employees in 2023, a third of whom have yet to return year-to-date. The office sector could reach a new equilibrium in two to three years at about 60% of the pre-pandemic office attendance. This transition is already unfolding and reflected in tenant downsizes and space rationalisation.
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Parting Thoughts

I thought that it is rather interesting to note that the worst be over for the US Office commercial sector if the above analysis by the "experts" are correct. Nevertheless, the main hurdle to clear now is still the selling off of Phipps Tower to lower the aggregate leverage ratio that is bordering on breaching the 50% imposed by the Monetary Authority of Singapore. I thought that MUST management will try to close this before 30 June 2023 but till now, I have yet to see any further developments.