While top global investors remained active in 2020, they backed off of one key asset class: offices.
The top 100 global investors purchased less in 2020 than they did in 2019, adding $65.4 billion of commercial real estate assets to their portfolios last year, according to Real Capital Analytics. That was a 22% decline from the $83.7 billion they purchased in 2019. Overall these investors added around one-fifth less commercial real estate to their portfolios in 2020. But in some sectors, the change in net additions was more pronounced.
Not surprisingly, the industrial sector led the way for the largest investors. The pace of net investment in the sector only fell 11% compared to 2019, while apartments only dropped 16%, according to RCA. Top investors added $14.5 billion more in apartments to their portfolios than they sold for the year.
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In office, by contrast, the largest investors added only $11.3 billion more office assets to their portfolios than they sold for the year. That was a 49% pace of decline from 2019.
"The biggest investors worldwide are not necessarily the most active buyers and sellers," RCA's Jim Costello writes. "Some investors have large holdings and focus more on steady, prudent management of income rather than dealmaking. Still, by looking at these changes in their appetite for deals, it is clear that these investors are rotating away from offices."
Costello says that the fact that net acquisitions fell more for offices than in other property sectors is a signal that the top global investors are concerned about both the future performance and current pricing of offices.
Other sources are showing investor uncertainty with offices.
In the office sector, only 27% of surveyed investors expect a price gain over the next 12 months, resulting in an average value decline of 2.7%, according to a recent survey of 500 commercial real estate investors by Marcus & Millichap.
"The big question is what percentage of workers will return to the office after the pandemic ends and whether office space needs have materially changed," Marcus & Millichap senior vice president and director of research services John Chang in a recent video.
Still, pricing is improving in the office sector. RCA found that office prices rebounded 3.3% year-over-year in January. Suburban offices drove those gains. Last August, office prices were posting no annual growth.
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Leslie Shaver
Les Shaver has been covering commercial and residential real estate for almost 20 years. His work has appeared in Multifamily Executive, Builder, units, Arlington Magazine in addition to GlobeSt.com and Real Estate Forum.
