VanEck has launched a new ETF that aims to provide concentrated exposure to the U.S. office property segment. The VanEck Office and Commercial REIT ETF (DESK ) targets office and commercial REITs.
The fund seeks to replicate the price and yield performance of the MarketVector US Listed Office and Commercial REITs Index. The index is intended to track the overall performance of U.S. office and commercial real estate investment trusts.
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As VanEck wrote in a blog post, the pandemic was a watershed moment for the office space and commercial real estate sectors. COVID-19 caused the concept of a traditional office to undergo a seismic shift. The rapid adoption and persistence of working remotely has impacted the commercial real estate landscape. This has led to a decline in lease renewals and the termination of existing leases.
Opportunity Amid Disruption
However, this market disruption offers a potential opportunity for investors in office REITs. Signs are emerging that the trend of working remotely is starting to reverse. Many large companies are now requiring employees to return to the office full or part time. Businesses still argue that physical office spaces foster collaboration, creativity, and corporate culture.
“More large employers are beginning to require employees to return to the office,” said Coulter Regal, product manager for VanEck. “However, the office real estate segment has continued to experience extreme negative sentiment.”
Of all the industries impacted by the pandemic and the resulting work-from-home trend, perhaps none was as affected as commercial real estate. Valuations for U.S. office properties remain at significantly depressed levels. Vacancy rates were at 13.1% as of Q2 2023, according to the National Association of Realtors. This is well above the 9.4% those rates were in Q2 2019.
“Commercial real estate is undoubtedly continuing to face strong headwinds and negative sentiment,” Regal added. “However, if one were to consider the relatively strong economy and retail real estate segment, investors may find this is an opportunity for tactical exposure or potential long-term capital appreciation while the relative high potential yield may offer income and a cushion to weather the volatility.”
“Unlike many diversified real-estate-focused ETFs, this ETF will provide more targeted exposure,” said VettaFi’s head of research Todd Rosenbluth. “Advisors might find the industry concentration appealing.”
DESK carries an expense ratio of 0.50%.
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