Office market’s recovery will outpace retail amid “viability” questions, Zell says

Equity Group Investments founder aired predictions for commercial real estate recovery

National /
Jan.January 25, 2022 01:53 PM
Equity Group Investments chairman Sam Zell (Getty, iStock)

Equity Group Investments chairman Sam Zell (Getty, iStock)

Billionaire investor Sam Zell has a sharp prediction for those cheering on the retail market’s recovery.

Appearing Tuesday in an interview for CNBC’s Squawk Box, the Equity Group Investments founder and chairman said he believes demand for office space will recover from the pandemic before retail spaces.

“Everything between the top mall and the corner grocery anchor mall … [there’s] a serious question as to its viability,” Zell said. “I think retail is much more of a falling knife than office, and I think that office is likely to recover much quicker than retail.”

Zell said the office market’s rebound would depend on how companies choose to hire employees for in-person work, in addition to integrating hybrid work plans.

“Ultimately the amount of time people spend in the office is gonna be very much related to the demand for their time,” Zell said on CNBC.

While Zell believes the office market will recover ahead of retail, he said the sector’s near future isn’t without its problems.

“Obsolescence is a big factor in the office market, and I think it’s gonna make some assets unsaleable without significant investment,” Zell said to CNBC, adding that his investment trust has been avoiding the office market.

Zell has repeatedly compared retail to a falling knife in recent years, even dismissing the space before pandemic-era lockdowns stuck shoppers at home and supercharged the rise of e-commerce.

The recovery of Manhattan’s office and retail markets offers a particularly stark example of the disparity between the two sectors’ different growth in the wake of the pandemic.

The borough’s retail leasing velocity increased in the fourth quarter, according to CBRE data. The rolling four-quarter aggregate leasing velocity rose to about 1.86 million square feet, up 17 percent from the third quarter but still 14 percent below the previous year.

Meanwhile, Manhattan’s office market showed signs of recovery all year. In November, tenants signed more than 3 million square feet of leases, the first month to exceed that mark since January 2020. according to Colliers’ monthly market snapshot. Leasing volume for the month was up 14.8 percent from October and more than four times from the prior year.

[CNBC] — Holden Walter-Warner





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