The office sector is not currently very popular with institutional investors. Tobias Moroni spoke to Sandra Ludwig, Managing Director at Institutional Investment Consulting Partners, about whether office properties are a thing of the past – or whether opportunities are emerging for investors from the market shakeout right now.
Tobias Moroni: Hello Sandra, the office sector is currently considered unattractive from the point of view of many institutional investors. Do you share this assessment?
Sandra Ludwig: In principle, yes. Many investors are currently focusing more on other segments – especially residential and logistics.
Tobias Moroni: What is currently weighing on the office segment in particular?
Sandra Ludwig: Several factors come together. Interest-induced value adjustments lead to higher loan-to-value ratios on refinancing. If fresh capital is only available in limited quantities, in some cases the only option is to sell it – which further increases price pressure.
Tobias Moroni: However, there are value corrections in almost all real estate segments. What makes the office sector special?
Sandra Ludwig: That’s right, the interest rate turnaround is having an impact everywhere. For office properties, however, the discounts are much greater. Prime yields – i.e. the net initial yields for prime properties – have risen by around 170 basis points in the top 7 cities. This corresponds to a loss in value of about 40%. This means that the corrections are significantly higher than the declines after the dotcom crisis or the financial crisis, for example.
Tobias Moroni: Does this mean, as in previous crises, that every crisis brings new opportunities?
Sandra Ludwig: Yes, but only selectively. The pandemic has structurally changed the demand for office space. Hybrid working models and increased ESG requirements ensure that users demand particularly high-quality, flexible and sustainable space. Anyone who invests should therefore focus on quality.
Tobias Moroni: Your conclusion for investors?
Sandra Ludwig: Timing and entry prices are always important anyway, but now they are even more important. Those who invest in the right properties now can also benefit from a shortage of supply in the high-quality segment in the coming years.
