Office market rebound outpaces retail: Sam Zell

Sam Zell, Chairman of Equity Group Investments (Getty, iStock)

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

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

“Everything between the Upper 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 office is likely to recover much faster than retail.”

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

“At the end of the day, the time people spend in the office will be very much tied to the demand for their time,” Zell told CNBC.

While Zell believes the office market will recover before the retail market, he said the sector’s near future is not without its challenges.

“Obsolescence is a big factor in the office market, and I think it will make some assets unsaleable without significant investment,” Zell told CNBC, adding that his investment trust is avoiding the office market.

Zell has repeatedly likened retail to a falling knife in recent years, even the rejection of space before pandemic-era shutdowns has locked shoppers at home and spurred the rise of e-commerce.

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

The borough’s retail leasing velocity increased in the fourth quarter, according to data from CBRE. Overall rolling four-quarter rental velocity increased to approximately 1.86 million square feet, up 17% from the third quarter, but still down 14% from a year earlier.

Meanwhile, the Manhattan office market has shown signs of a year-round recovery. 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. Rental volume for the month was up 14.8% from October and more than four times from a year earlier.

[CNBC] —Holden Walter-Warner

Jose C. Birney