'Alarming' Obsolescence Drives Office Building Repricing: Data

Originally published on March 9, 2022 by Randall Zisler, Ph.D. for Zisler Capital Associates.

A new economic analysis of the state of U.S. office buildings reveals that as much as 70% of the total inventory faces an alarming period of repricing due to fast-paced obsolescence, accelerated by COVID but exacerbated by evolving environmental and health standards. The underlying factors, that will get stronger over the long term, are strict new government standards for energy efficiency and growing tenant demands for healthy, safe, and energy-efficient office environments with ample modern amenities.

"Obsolescence already has created a 'green' premium of 6% for leases in sustainable buildings that can meet government energy standards and achieve carbon neutrality. In addition, tenants are now willing to pay a 'health' premium, significantly pushing rental rates up over other office space, separate and apart from the green premium," according to Dr. Randall Zisler, a real estate economics expert, who authored the study and is the chair of Zisler Capital Associates. 

"While waiting for the pandemic to end, many investors don't recognize that obsolescence is devouring billions from office building values," states Dr. Zisler. 

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