Value-Add Strategies Will Drive Office Investments This Year
Quarterly volume topped $50 billion for only the fourth time in history.
The office market finished the year with a bang, according to Colliers International. Investors came roaring back at year-end, with a particular focus on core coastal cities. Nine of the top 10 sales in Q4 were in major coastal markets. Life science remains a key driver of overall sales volume.
Quarterly volume topped $50 billion for only the fourth time in history, and the first since the heyday of the REIT privatization trend of 2006-2007.
Office fundamentals are improving. An increasing share of markets posted positive net absorption in Q4. Rents remain mostly stable, and tenant activity has picked up.
Construction is also easing, which will further support vacancies.
Office Value-Add Opportunities to Gain Traction
Office should be an area of focus in 2022 and beyond. Cap rate compression hasn’t been as significant in this sector (outside of select assets) compared to other property types.
Capital will look to office as a value play relative to other investments. Value-add opportunities will gain traction, and REIT privatization bears watching.
Life Science Hubs Lead the Way
In 2021, markets such as Boston and the San Francisco Bay Area saw multiple headline transactions in Q4, setting new price points for assets in these major life science hubs. Their dominance in this surging industry bodes well for continued liquidity.
Well-occupied assets are still the preference for most investors. However, depending on the market, some investors are purchasing assets for conversion and seeing dramatic returns.
Case in point: Charles Park in Cambridge, Mass.: These assets traded at the end of 2020 for $467.5 million ($1,293 per square foot). One year later, they sold for $815 million ($2,255 per square foot) as the assets are becoming lab/R&D space.