Navigating Office Capital Flows: Key Insights for Corporate Occupiers

Recent capital flows into U.S. office buildings have been subdued due to high interest rates, tighter lending conditions, and uncertainty around office occupancy post-pandemic. However, there are signs of improvement as office sales volume has ticked higher for the past 24 months. 

Key trends include:

Decline in Investment Volume: Office property transactions have dropped significantly compared to pre-pandemic levels, with investors cautious about remote work trends and high vacancy rates.

Higher Borrowing Costs: The Federal Reserve’s tight monetary policy has made financing office acquisitions more expensive, leading to fewer deals.

Distressed Asset Sales: Some investors are targeting distressed office properties at discounted prices, especially in major cities like San Francisco and New York.

Shift Toward Prime Assets: Capital is flowing more into high-quality, well-located office buildings with strong tenant demand, while older or underutilized properties struggle to attract buyers.

Private Equity & Foreign Investors: While institutional investors have pulled back, some private equity firms and foreign buyers are selectively acquiring office assets at bargain prices.

Overall, capital deployment in the U.S. office sector remains slow, with selective interest in prime properties but broader challenges for the market.

US Office Sales Volume 

Traditional office deals continue to be suppressed compared to historic levels, but signs of renewed life as investor sentiment slowly improves. During 2024, the office market recorded $63.5 billion in sales, an increase of 21.7 percent from the previous year. Further, the speed of sales is increasing as sales volume increased in the fourth quarter of 2024, compared to the fourth quarter of 2023, surged 29.8 percent.  

Still, institutional investors and REITs have generally been shedding office space since 2022. Corporate buyers and private investors are competing for the best deals, motivated by dramatic discounts for the chance to purchase properties at a fraction of replacement cost to replace them. 

Office Capital Composition

The buyer profile has shifted over the past several years within the office market, as private investment has taken a larger percentage. As demand has dropped, investors with more of an appetite for risk have swooped in looking for deals with large upsides. Meanwhile, Real Estate Investment Trusts (REITs) and institutional investors have decreased their exposure in 2024, perhaps looking for a more stable office market in the next three to five years.

Office Capital Flows: Net Acquisitions

Office capital flows represent whether companies netted more acquisitions or dispositions by year. Cross-Border investment in office real estate has dropped in two of the past three years, as overall capital markets have broadly slowed. Only private investors have made positive bets in each of the past three years, looking for bargains and potential significant upsides. Meanwhile, REITs and other listed investments have shed assets in eight of the least nine years.