U.S. Office Market: Investors Are Coming Back
NEW YORK — The U.S. office market is showing signs of recovery as investors return, marking the first increase in sales volume since 2021. According to new data from Morgan Stanley Capital International (MSCI), office building sales surged by 20% in 2024 compared to the previous year, reaching $63.6 billion.
Despite this uptick, the sales volume remains significantly lower than the 2015-2019 average of $142.9 billion per year. Investors are strategically acquiring half-empty towers and premium buildings burdened by debt, as well as obsolete office properties with the potential for residential conversion.
Looking ahead to 2025, industry analysts anticipate a further boost in sales activity, potentially driven by a resurgence of foreign investment. Preqin reported that at the end of 2024, real estate funds held $196.8 billion in cash reserves, an increase from $179.9 billion in 2020, positioning investors for further acquisitions.
One of the most notable transactions in December 2024 was Norges Bank Investment Management’s acquisition of the remaining 50.1% stake in eight office properties in Washington, D.C., Boston, and San Francisco. John McCarthy, head of U.S. real estate for Norges, emphasized the firm's strategy, stating, “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.”
The shift toward in-office work has also contributed to renewed interest in the sector. Many businesses are mandating employees' return to the office, driving increased leasing activity. Green Street, a real estate analytics firm, noted in its January report that owners of high-quality office buildings in strong markets “should be on much better footing to start the new year than they have in recent memory.”
However, challenges remain. The market continues to grapple with high vacancy rates, rising loan delinquencies, and a significant decline in property values. Premium-grade A office buildings have experienced price drops ranging from 35% to 60% since the pandemic, reflecting ongoing market adjustments.
Despite these hurdles, the return of investor confidence signals a potential turning point for the office market, with opportunities emerging for those willing to take on calculated risks in a changing landscape.
