Beware of investing in commercial property
With many companies are planning to adopt a “hybrid” working model once the pandemic is over, the market for office property is facing a reckoning.

The market for office property is facing a reckoning. Many companies are planning to adopt a “hybrid” working model once the pandemic is over, with weeks split between days in the office and days working from home. That means they will require less floorspace than before. A survey of Britain’s 258 biggest firms by PwC found that half have plans to “cut the size of their property portfolios”, says The Times. Planned reductions amount to “nine million sq ft” of space. That’s equivalent to 14 London skyscrapers-worth of floorspace that nobody wants.
“Globally, more than 103 million square feet of office space has already been vacated since the pandemic began”, according to data from broker Cushman & Wakefield, says The Economist. Moody’s Analytics thinks “roughly one in five offices in America will be empty in 2022”. Older buildings are particularly vulnerable. “Nearly two-thirds of commercial property in London” is over 20 years old.
Landlords at the premium end of the market are still feeling optimistic, says George Hammond in the Financial Times. Blue chips regard a swanky office as vital for recruiting top talent. They are still willing to splash out on “high-end finishes and cavernous atriums”. Premium London offices are attracting particularly high levels of investment. Yields as high as 4.2% are more attractive than the 2.75% average office yield available in Paris. Market insiders say the key theme is “bifurcation”: while “modern, flexible spaces” can still hold their own, older spaces are emptying out rapidly.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
A coming crash?
Office prices in major global cities have so far held up well, says The Economist. That could change when governments withdraw crisis support and companies finalise their post-pandemic office plans. A property crash would pose systemic risks: about one-fifth of US bank lending, or over $2trn, has been made to commercial property. Pension funds are also heavily exposed. As Konrad Putzier reports in The Wall Street Journal, “big global pension funds have been raising their allocations to commercial real estate”. That looks odd, not least because it’s not only offices that face a reckoning. One in two US hotel rooms are unoccupied. Shopping malls are being ditched in favour of buying online. Warehouses, which service that need, are the only bright spot. So what gives? Funds fear inflation more than a price crash.
Bricks-and-mortar are a time-honoured inflation hedge, says Ben Wright in The Daily Telegraph. But inflation only happens “for those things people actually want”, and office space may no longer be one of them. “Investing in commercial property to protect against inflation may soon look like buying an umbrella ahead of a meteor shower.”
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
-
How Next positioned itself as a British high-street staple
Next rose from a near-death experience and now thrives as a high-street staple. What's driving its success – and should you invest in the retailer?
-
Alok Sama on AI and investing in the future of technology
Interview Alok Sama, the former president and chief financial officer of Masayoshi Son’s investment vehicle SoftBank Group International, explains AI’s potential
-
How Next defied the odds and positioned itself as a British high-street staple
Next rose from a near-death experience and now thrives as a high-street staple. What's driving its success – and should you invest in the retailer?
-
Alok Sama on AI and how to invest in the future of technology
Interview Alok Sama, the former president and chief financial officer of Masayoshi Son’s investment vehicle SoftBank Group International, explains AI’s potential
-
The private equity puzzle
Listed private equity trusts still trade at large discounts, despite sales that validate their valuations
-
Why investors should avoid market monomania
Opinion Today’s overwhelming focus on US markets leaves investors guessing about opportunities and risks elsewhere
-
Can Rachel Reeves save the City?
Opinion Chancellor Rachel Reeves is mulling a tax cut, which would be welcome – but it’s nowhere near enough, says Matthew Lynn
-
Pierre-Édouard Stérin wants to make France great again
Conservative billionaire Pierre-Édouard Stérin is seeking to lead a political and spiritual renaissance across the Channel. The planning looks meticulous
-
Global investors have overlooked the top innovators in emerging markets
Opinion Carlos Hardenberg, portfolio manager, Mobius Investment Trust, highlights three emerging market stocks where he’d put his money
-
Pinewood Technologies: a drive for growth
Pinewood Technologies’ platform is one of the best in the business. Investors should buy in