Renewed Investor Interest in the U.S. Office Market Further Brightens Outlook for the Sector

The volume of U.S. office building sales marked the first increase since 2021. According to reported data from global real estate indices provider MSCI, investment sales within the sector reached $63.6 billion in 2024, representing a 20% increase from 2023. However, the “activity still pales with 2015 to 2019, when volume averaged $142.9 billion a year.” Interest among investors varies from those “buying premium quality buildings that are burdened with debt,” while others are taking advantage of steep discounts on office towers that remain half-empty. Another group with interest in residential conversions is bidding on obsolete office properties. Independent commercial real estate research and advisory firm Green Street noted that “values for less than premium grade A office buildings are about 35% to 60% lower that they were before the pandemic. Some buyers are ready to risk investment in “buildings that are located in prime locations near transport hubs but are struggling with debt and too much empty space.” The recent 49% stake acquired by New York landlord RXR Realty in 1211 Avenue of the Americas was cited. The transaction reportedly valued the tower that is home to News Corp. and 21st Century Fox at about $1.3 billion, including new capital, which is about “$700 million less than the building was worth in a 2015 refinancing.” Vacancy at the approximately 1.9 million-square-foot tower will increase to about 25% due to the upcoming loss of one of its largest tenants. In addition, the report indicates that a $1 billion debt is coming due this year, “making it tricky to refinance because of high rates.” Offshore investors have also started showing renewed interest, the article by the Wall Street Journal citing Norges Bank Investment Management, which last year purchased a 50.1% stake if eight office properties spread across Boston, San Francisco, and Washington, D.C., valuing the package at $1.9 billion; and along with another separate single-asset purchase last year, marked the Norwegian sovereign-wealth fund’s first U.S. office investment since 2018.

Source:    https://www.wsj.com/real-estate/commercial/office-market-return-to-work-rebound-8b8d42c7