The reason why the office park remains strong despite the rise of teleworking and changes in the organization of companies is that a bubble is occurring in technology companies in the US, of which even the Bank of Spain is already warning.
I present to you Merlín Properties. Perhaps you have never heard of it, but it is the largest REIT in Spain, with a market value of 5,773 million euros. They own 4 million m2 for rent between Spain and Portugal, among which are one of the Four Towers in Madrid, the Agbar tower in Barcelona, and several buildings on Castellana and Diagonal.
Among all the Socimis, Merlin has a peculiarity that makes it the canary in the mine of the bubble we are experiencing: it is not dedicated to renting homes.
For this reason, its price plummeted in March 2020 (it is the practically vertical line seen in the graph). When the entire world was locked in a confinement that did not know when it would end and teleworking went from zero to a hundred, investors panicked – understandably – that the office market would collapse. Only a month before it had marked a historical maximum of 13.33 euros per share.
It has rained a lot, but not for Merlín, which just before the government’s announcement to change the tax regime for SOCIMIS was trading above 11 euros.
Does this make sense? If we think about how much the world of work has changed since 2020, the number of people who no longer go to the office every day and the more than foreseeable acceleration of this trend in the next 10 or 20 years, one would say that a company that receives half of its income from office rentals should not be doing so well, if only because of the uncertainty.
On the contrary, these companies should be undergoing a profound restructuring to move their investments to other sectors or to undertake the arduous task of changing the use of the properties they have in their portfolio to others that do not have such an uncertain future. And your actions should reflect that moment.
But it’s not happening. Except for some siren songs linked to sectors that do not yet exist in the volume and density with which they intend to invest –like that one about “data centers”-, it does not seem that anyone is very nervous about the fate of the millions of square meters of offices that exist in the large Spanish cities. And this despite the fact that in other countries it is already felt the searing pain of having a zombie office park.
The listing of Merlín Properties SOCIMI SA is the best advance photograph of the bubble we are experiencing. One that rides on the back of inertia that we know, such as the efforts that countries make to maintain and increase the price of housing and land, but also new ones.
Specifically, the reason why the office park remains strong despite the rise of teleworking and changes in the organization of companies is that a bubble is occurring in technology companies in the US, of which there is already warning until now. Bank of Spain.
And, in addition to the risks indicated by the BdE, such as “the potential amplification effects [de una crisis] through investment funds […] In view of the high holdings of shares in the hands of these intermediaries”, these companies are pumping resources into their regional headquarters in peripheral countries and, in this way, supporting the office market.
And this is why large holders of commercial real estate assets can continue to maintain the appearance that nothing is happening here: neither physical shopping centers are in the doldrums nor have offices ceased to play a role in an interconnected age. Nor will they be as long as money continues to arrive from Wall Street to pay very expensive concept stores and emblematic offices in the center of cities for large technology companies and the entire network of companies that provide services to them.
Until that money stops coming.
#bubble #graph
