Opportune Time To Buy US Office Properties, Says Some Experts
USA – Some market watchers, like Colliers and Okada, think that now could be a good time to acquire office buildings, based on historic trends, according to a recent report from GlobeSt.
For instance, Colliers shared that when banks tighten, the four-year forward price change greatly outperforms.
“Think back to the early 1990s savings and loan crisis, the dot-com bust, and the Global Financial Crisis Those who acquired assets during those periods saw strong outperformance in the years that followed,” stated Colliers’ Research Director for US capital markets Aaron Jodka.
However, Thomas Koelzer, a Partner at Tenant Advisors/CORFAC International, disagrees. He believes that the situation could get worse for US office properties.
“More bad news is coming for landlords because the full pain of the post-pandemic office market hasn’t been felt, since many tenants still have time left on their leases. As these leases expire, many tenants will either reduce their size or simply not renew their leases. This phenomenon means a long-term, if not permanent, reduction in the demand for office space.”
Still, Craig Tomlinson, Senior Vice President at Northmarq, thinks there are niche opportunities for would-be buyers of office assets.
“The bad news is derived from increasing vacancy and sublet space surrendered by large corporations in urban office towers and in leased corporate campuses. Large corporations, in general, have not mandated return-to-work, or have shifted to hybrid models that need significantly less space.”
“Not so with the smaller suburban offices. Those buildings tend to be occupied by small or private businesses where the decision makers are onsite and want their staff presents too.”
Tomlinson shared that suburban office spaces measuring 100,000 sq ft or less also tend to have a rent roll without an anchor tenant, diversifying an investor’s rollover risk.
“Smaller office buildings are more likely to be owned by private investors who may be more motivated to transact in a rising rate environment.” On the other hand, entities with large capital don’t prefer small offices as aggregation and management are both tedious in such a setting. This he thinks has created a buying opportunity for smaller office assets that could persist through 2023.
Manuel Fishman, a stockholder at Buchalter who represents developers and landlords in buying, selling, and funding commercial properties, revealed that he would say yes to office properties with a single-tenant and triple net buildings with a credit-worthy occupant.
On the other hand, “there is too much uncertainty for multi-tenant office, office occupancy, office demand, interest rate climate, and return on capital,” he explained.
Meanwhile, Okada & Company’s Chief Executive Chris Okada disclosed that some office buildings in York City are available at hefty discounts not seen since 2009.
“With discounts ranging from 30 to 60 percent off-peak pricing, there are remarkable investment opportunities present in New York City commercial real estate, particularly in office space.”
“Okada & Company believes the next 12 to 24 months present opportunities for significant returns on real estate investments, possibly the most significant in a 25-year period,” he added.