Paul McDowell’s business has seen happier days. He runs Orion Office REIT, a real estate company that owns 81 office properties with an 88% occupancy rate. But hybrid work has hurt profits and demand for new offices. Since going public in late 2021, Orion’s stock is down 74%.
“Being in the office sector is not necessarily the easiest place to be,” Orion’s (ticker: ONL) McDowell told a recent investing conference in New York, looking at his sparse audience.
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The great debate in real estate is whether the vacant office buildings in many cities will ever refill. Office vacancy has reached nearly 25% in cities like San Francisco and Chicago. Office real estate stocks are down 50% from pre-Covid highs, while the REIT sector has lost 9.5% in the past year against the S&P 500’s 14.5% gain.
But offices are now just 3.4% of the $1 trillion public market for real estate investment trusts, or REITs. The broader REIT space isn’t as troubled. With valuations laid low, there are bargains amid the rubble.