MarketSnapshot: Multi-Tenant Office

Despite a reduction in the number of transactions, the multi-tenant office sector witnessed an uptick in quarterly sales volume during third quarter 2024, with nearly $11.1 billion reported. With higher priced trades driving performance in the last three months, the office sector is on track to outpace 2023’s annual sales total. Still, volume remains depressed compared to the boom years of 2021 and 2022, with those levels seemingly out of reach for the foreseeable future. Transactions across the West and Northeast regions contributed nearly 55% of this quarter’s activity, with office towers and complexes, along with healthcare portfolios and other high-profile trades, concentrated in a handful of urban metro areas.

While the average office cap rate dropped two basis points in the last three months, the current average of 7.35% remains elevated and is comparable to rates not seen since late 2011. By region, the spread of cap rates has widened in the past year and there is nearly a 200-basis point difference between the West region, at 6.53%, and the Mid-Atlantic region, at 8.47%.

Following a substantial pullback in 2023, REITs have displayed a renewed interest in multi-tenant office assets and currently comprise 13% of the sector’s buyers year-to-date. Compared to 2023, institutional investors have also shown increased activity levels, reporting 21% market share so far this year. Private investors, however, continue to hold the top spot, representing over half of multi-tenant office buyers in 2023, while international capital has been significantly less active in the office sector.