Office, industrial REITs show diverging performance trends

November 07, 2024 (MLN): There persists a wide divergence in office and industrial real estate investment trusts (REIT) performance despite modest reversals, according to a new report published by Fitch Ratings.

Office Stress Varies: Employees are increasingly returning to the office, sometimes prodded by emboldened employers that are more firmly adopting in-office mandates.

Fitch anticipates, however, that tenants on the margin may look to consolidate and reduce occupied office space as leases expire.

Weaker demand will persist for many years as old leases expire and new ones are negotiated and signed.

Offices that offer modern workspaces with attractive amenities and sustainability features, located near commuter destinations and central business hubs, will be best equipped to achieve the highest levels of demand and rents.

Industrial Expansion Softening: Strong and secular tailwinds, such as growth in e-commerce and onshoring of manufacturing activity, have driven demand for warehouse space, thus strengthening industrial REIT fundamentals.

Occupancies have held near 100%, with strong positive leasing spreads. They have declined from recent record high levels, but remain healthy and well into double digits.

Fitch, however, anticipates conditions that will support continued strength in fundamentals, albeit less robust.

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