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Office Investment Increases for First Time Since 2021

Investors are keeping a close eye on the US office sector after half a decade of turmoil, looking for deals on premium properties they can lease up or obsolete buildings they can flip to apartments. Large foreign investors are showing renewed interest in the sector as they look to get ahead of a wave of buying expected later in 2025, according to The Wall Street Journal.

Office building sales volume increased to $63.6 billion last year, according to MSCI data. That’s a 20% increase from 2023, and while it is still well below sales activity in the range of $143 billion before the pandemic, it marked the first increase since 2021.

Brokers expect sales activity to continue to accelerate in 2025, as a mountain of cash sitting on the sidelines looks for opportunities, according to the article. Data fund Preqin estimates opportunistic real-estate funds had $196.8 billion available at the end of last year, up from $179.9 billion at the end of 2020.

Return-to-work mandates could be contributing to the office sector momentum. Meanwhile, some markets are experiencing office space shortages as new development has all but stopped in recent years, said the WSJ.

“We hear from customers they’re going to continue bringing more workers back to the office. In many cases, they don’t have enough space to accommodate the transition,” said Colin Connolly, chief executive of Cousins Properties, which recently bought office assets in Atlanta, Austin, Texas and Charlotte, N.C.

Norwegian sovereign wealth fund Norges Bank Investment Management also has begun making moves in the US office sector. Last month it invested in office properties in Boston, San Francisco and Washington, D.C., and last year it bought an office building in Menlo Park, California.

“We see an opportunity being a very large capital source that is willing to write checks in a sector that most of our peers are still not willing to invest in,” said John McCarthy, head of U.S. real estate for Norges.

While the office market is starting 2025 on better footing than it has in a while, it still faces challenges from high vacancy rates to loan delinquencies. Although some capital is returning to the sector, many investors remain leery and still favor more stable multifamily and industrial opportunities, according to the WSJ report.

Sellers hoping for lower interest rates this year to boost commercial property values may not get their wish, as the Federal Reserve has signaled plans to keep rates steady. This may spur property owners who were holding out to put their properties on the selling block.

Reprinted with permission from the Wednesday, 29 January 2025 06:58:34 EST online edition of GlobeSt © 2025 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or reprints@alm.com.