Office Investment Sees First Uptick Since 2021

After years of uncertainty, the U.S. office sector is drawing renewed investor interest. Buyers are targeting high-quality assets with leasing potential or underutilized buildings suitable for residential conversions, with foreign investors positioning themselves ahead of an expected market upswing later in 2025, according to The Wall Street Journal.

Office property sales reached $63.6 billion in 2024, a 20% increase from the previous year, per MSCI data. While this remains significantly below pre-pandemic levels of around $143 billion, it marks the first annual increase in sales volume since 2021.

Industry experts anticipate continued momentum in 2025 as substantial capital seeks deployment. Data provider Preqin reports that opportunistic real estate funds held $196.8 billion in available capital at the end of last year, up from $179.9 billion in 2020.

The office sector’s recovery may be partly driven by return-to-office policies. Limited new office development in recent years has also led to supply constraints in select markets.

“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, CEO of Cousins Properties, which recently expanded its office holdings in Atlanta, Austin, and Charlotte.

Institutional investors are also beginning to reenter the office market. Norges Bank Investment Management, Norway’s sovereign wealth fund, has recently acquired office properties in Boston, San Francisco, and Washington, D.C., adding to its 2023 purchase in Menlo Park.

“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.

Despite signs of recovery, challenges remain, including high vacancy rates and loan delinquencies. While some capital is returning, many investors still favor more stable asset classes like multifamily and industrial real estate.

Sellers hoping for lower interest rates to improve property values may face continued pressure, as the Federal Reserve has indicated it will maintain current rates. This could encourage more property owners to list assets in the coming months.

Source: Globest