MarketSnapshot: Single-Tenant Office

After a comparatively strong start to the year, investment sales activity in the single-tenant office sector has returned to below average levels. Just $1.6 billion in sales volume was recorded during third quarter 2024, making it the second slowest quarter on record in over a decade. However, due to first quarter’s strong performance, the sector has already nearly surpassed last year’s annual sales volume. While 2024 is still set to be a rather unimpressive year, the net lease office market should have no problem outperforming 2023, especially given the attractiveness of medical office and healthcare assets in today’s marketplace.

Average cap rates have been on a steep trajectory since bottoming out in mid-2022. After eight consecutive quarters of increases, the average office cap rate now sits 86 basis points higher at 6.94%. Regionally, however, there remains a nearly 125-basis point spread, with West region office transactions trading at an average cap rate of 6.26% and the Southwest region reporting an average of 7.50%.

International buyers remain largely absent from the single-tenant office sector for the third straight year, while private investors, at 28%, represent the most active buyer group. Their market share has decreased substantially from previous years though, as REITs have stepped up activity. With nearly a quarter of the market share, REITs have been pursuing net lease office and healthcare properties at the highest rate seen since 2015.