Investors Smell Opportunity in US Office Market

Investors are finding opportunities to pour back into office markets across the country.

A bump in activity last year stoked hopes investors were back to lift the office market out of a tumultuous half-decade, the Wall Street Journal reported. Buyers like sizable foreign players or those interested in conversions may be getting in on the ground floor of a sector resurgence as many sellers are still stuck with heavily discounted properties.

“People are making their bets,” Eastdil Secured managing director Gary Phillips told the publication.

That much was evident last year. Interest rates didn’t come down as much as hoped and macroeconomic concerns still loomed, but the volume of office sales in the country hit $63.6 billion, according to MSCI. That represented a 20 percent increase from the previous year, the first jump since 2021.

Investors are ready to jump in this year, too. At the end of 2024, opportunistic real-estate funds had $196.8 billion available, according to Preqin. That’s $17 billion more than they had at the end of 2020.

Bargain basement prices aren’t the only draw for office investors. There’s a broad push for workers to return to their spaces — with the most vocal pushes by some finance giants and the federal government — that could in turn make the properties more inviting for investors.

Among those taking their shots at the office market is Norges Bank Investment Management, which recently bought a majority stake in an eight-office portfolio that valued the properties at a collective $1.9 billion. It was one of two office investments made in the United States last year by the Norwegian sovereign wealth fund, its first investments in the country’s office market in six years.

“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 Norges’ head of U.S. real estate, John McCarthy.

Scott Rechler’s RXR recently acquired a minority stake in Ivanhoe Cambridge’s 1211 Sixth Avenue in Midtown Manhattan. The purchase valued the building at $1.3 billion, down $700 million from 2015. RXR is planning a $300 million investment in the property.

Flight-to-quality continues to matter. Values of office buildings that don’t meet the top-graded standard are down 35 to 60 percent from before the pandemic, according to Green Street.

— Holden Walter-Warner