U.S. Office Property Investors Moving to Suburban Assets as Downtown Property Yields Become Too Low, Says RCA
Sales of office properties in the US worth $2.5 million or more totaled $5.4 billion in July, down 10% from a year earlier, the third consecutive month of decline, according to Real Capital Analytics' (RCA) "US Capital Trends Office" report for July.
Unlike in the recent past, suburban office buildings have gained popularity. The sales volume of suburban office properties in July was $3 billion, greater than the volume for CBD properties, which was $2.4 billion. While CBD property sale volume was down 40% year-over-year, the sales volume for suburban properties was up 51% year-over-year, according to RCA.
Sales of several medical office portfolios helped add to the sales volume of suburban office properties in July, but the trends are still positive for suburban offices, even excluding portfolio sales, according to the RCA report. Individual property transactions of suburban office buildings were up 39% year-over-year in July.
So what is going on? "Generally speaking, investors are moving to suburban offices, because CBD offices in primary markets are trading at such low yields that it doesn't make sense for most investors to buy in the CBD. As a result, many investors are shifting to the high quality suburbs," says Ben Carlos Thypin, director of market analysis at RCA.
Meanwhile, public REITs, that still have access to cheap, unsecured debt, have chosen to acquire a lot fewer offices in 2012 than in 2011. After accounting for 20% or more of office acquisitions in Manhattan, San Francisco, Boston and Chicago last year, they are responsible for 5% or less of the dollar volume in those markets so far this year, according to RCA. "Presumably, they too are looking for transactions with better yields," says Thypin. "Two office REITs, SL Green and Vornado, have been investing a lot more in retail (and, to a lesser extent, multifamily) than usual," he says.
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Ben Carlos Thypin
I am currently the co-founder of Quantierra, the world's first data driven real estate brokerage and investment manager. In my former life as Director of Market Analysis at Real Capital Analytics, I worked with press outlets large and small to provide them with great data and insightful commentary. Here are some of the results of this collaboration. For the rest, please check out the News Archive.
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