Real Estate Billionaire Sam Zell Says Office Space Will Rebound Faster Than Retail

Topline

Real estate billionaire Sam Zell predicted Tuesday that office space will recover much more quickly than retail properties from their current pandemic levels, as workers return to the office once Covid-19 becomes “less of a risk”— though he noted hybrid arrangements are likely to stay.

Key Facts

Zell, founder and chairman of private investment group Equity Group Investments, said in an interview on CNBC he thinks office space will likely fill once Covid-19 poses less of a risk to workers, adding he thinks office space will “recover much quicker than retail.”

Zell was more skeptical about retail spaces like malls, saying there’s a “serious question as to [retail’s] viability,” adding he thinks it is much more of a “falling knife” than office properties.

He predicted the speed of recovery for office space will be tied to thriving industries enticing and hiring more workers to work the office, but added he also thinks hybrid work will become commonplace.

Obsolescence is a main factor for the office market, according to Zell, who said he thinks some offices will remain hard to sell without “significant investment,” noting the current disparity between office prices and office attractiveness, and how there has been “relatively little” change in pricing.

Key Background

The amount of employees working in the office in major cities sharply declined due to the Covid-19 pandemic, which forced many employees to work from home. Before the pandemic, 75% of workers had never worked from home, according to the National Council on Compensation Insurance. But 71% of Americans who said their job responsibilities can be done from home reported they worked from home in 2020, according to Pew Research. As workers return to the office, demand for office space is rising from 2020 levels—in March 2021, demand across the country was 29% lower than average pre-pandemic levels for that month, a rebound from a 60% year over year decline in January, according to a  VTS report. Many major companies, including Deloitte, Facebook, Google, Lyft, Salesforce and Uber, have moved to allow workers to work from the office if they are vaccinated, but do not require employees to work full-time in the office.

Big Number

$5.8 billion. That’s how much Zell is worth, according to Forbes’ net-worth tracker.

Surprising Fact

The $39 billion sale of Zell’s portfolio of hundreds of office properties, REIT Equity Office, to Blackstone in 2007 is considered to be among the largest real estate deals in history.

Further Reading

Real estate billionaire Sam Zell says office space will recover ‘much faster’ than retail (CNBC)

Will Offices Make A Comeback Post-Pandemic? 15 Real Estate Pros Share Their Insights (Forbes

Billionaire Sam Zell Talks Trump, SPACs, And Interest Rates In Forbes Q+A (Forbes)

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