Office Attracts More Investors As Companies Announce Plans to Return to Work

Much has been written about the ongoing challenges facing the office sector as a result of COVID-19, but the first quarter of 2021 has represented an inflection point for the asset class, as companies begin to actualize plans for a return to physical work.

A new report from Crexi shows that investors looking for office deals were 25% more active on the firm’s marketplace in Q1 than in the previous quarter. And tenant leasing activity picked up 42.9% over the same period, with office attracting the second most amount of overall buyer attention behind retail properties.

The average asking price for office assets on Crexi grew for the third consecutive quarter and showed a 5.13% gain over Q4 numbers. Occupancy levels also ticked up slowly, with 2.16% growth over the previous quarter but with rates still far below pre-pandemic levels.

Asking leasing rates also decreased a minimal amount, but the amount of new inventory added early this year jumped 55.5% compared to Q4 numbers.

“This number likely represents a significant amount of sublease space, particularly of mid-sized offices as organizations seek a middle ground, where less space is needed overall, but more square footage per employee is needed to keep workspaces distanced,” the report notes.

Within the sector, there was considerable variation in gains. Medical offices accounted for a big percentage of new Q1 listings, with a 36.9% increase in the amount of new assets available to lease and a 12% jump in those available for sale, according to Crexi.  The amount of flex space for lease also jumped 29.7%, and coworking spaces increased by 23.5%.

The data is bolstered by similar findings from other firms, which show demand is booming for space as companies reimagine their post-COVID footprint. The national VTS Office Demand Index (VODI), which tracks tenant tours of office properties across the US, picked up considerably in January and February and is now just 38% lower than it was just before the pandemic. February also marked the first month since October 2020 where demand grew in all of the office markets tracked by VODI, led by cities like New York City, Seattle and Washington, D.C.