There’s growing evidence that the office market — at least amongst Class A and A+ properties — is becoming a viable investment again. Colliers rated the best 10 office markets from 2024, based on total volume.
According to the firm, this is a rebound after office reached bottom in 2023, calling the asset class a “leader in year-over-year sales gains.” The top 10 in volume are Manhattan ($7.6 billion, up from $5 billion); Los Angeles ($3.7 billion, equal to 2023); Boston ($3.2 billion, up from $2.6 billion); Dallas ($2.9 billion, up from $2.5 billion); Washington, D.C. ($1.9 billion, up from $1.4 billion); Houston ($1.8 billion); Atlanta ($1.8 billion, up from $1.2 billion); Miami ($1.8 billion, up from $1 billion); Phoenix ($1.7 billion, down from $1.8 billion); and Austin ($1.6 billion, up from $900 million).
Q4 alone topped $21 billion in activity and was nearly equal to 2022 Q4. Compared to Q4 2023, volume was up 36%. Central business district sales improved “strongly.”
Office values are still down over time. Only Miami and Phoenix showed gains over 2023, and each was still more than a 40% discount from five years ago. Dallas-Fort Worth and Houston were flat over the last year. Atlanta, Austin, and Boston were down between 1% and 2% year-over-year. All the metros were down over the previous five years, from more than 40% to over 60%.
The office leasing markets were uneven heading into 2025. Occupiers continue to reduce their space requirements as long-standing leases expire. They also tend to trade up, picking higher-quality environments. Rather than an all-or-nothing approach to return-to-office strategies, companies have structured more flexibility in their approach to encourage greater productivity. “Large, sprawling campuses are being rethought, with the potential for redevelopment opportunities,” Colliers wrote.
Over the last few years, new construction has been down given the fall of the office segment in general. That has left fewer Class A and A+ options available for occupiers, opening an opportunity for new construction plans. Rents remained steady or rose at the top. Rents in lower property classes have declined. Concession packages have remained at national highs, putting downward pressure on effective rents.
Also, given the lack of choice now, and the competition for space driving up rents, some companies are choosing space in buildings that are just below the top tier. Currently, it’s impossible to tell whether that trend could continue with a trickle-down effect through all classes.