Older office buildings ‘will be stranded,’ says Morgan Stanley: ‘They simply don’t have long-term cash flow growth potential’

Plunging demand for commodity offices in the US is driving growth for the highest-quality properties, a Morgan Stanley executive said.

Many older offices “will be stranded because they simply don’t have long-term cash flow growth potential,” Lauren Hochfelder, co-chief executive officer of Morgan Stanley Real Estate Investing, said in a Bloomberg Television interview Thursday. “Those assets just don’t meet modern tenant demand, they don’t meet them from a standpoint of quality or amenitization.”

The best buildings are those that focus on wellness and amenities and are well-located, Hochfelder said. The trend is apparent in places such as San Francisco, which is one of the worst office markets globally, she said.

“We own some of the best office assets in that market,” Hochfelder said. “Even today, we’re signing leases at rents above pre-Covid levels.”

Morgan Stanley has been seeking real estate deals that arise from the upheaval in commercial-property markets around the world. It’s particularly focused on industrial buildings, as e-commerce and shifts in the global supply chain stoke demand, Hochfelder said.

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