A tale of two office markets (part 1): Where are the opportunities in office investment, given the wide bifurcation between success and distress?
The office sector is facing more than its share of tough challenges in a new era of hybrid work that has altered basic supply and demand fundamentals.
The story of surplus office space creating a drag on the office sector appears pretty straightforward. Vacancies have increased as demand has decreased. The national office vacancy rate has climbed into the high teens, which will take years to absorb given the tepid demand and downsizing still under way. However, it’s tough to paint office with the same brush; certain geographic markets have been less affected, and strong assets are outperforming weaker peers.
“On one hand, there are those questioning the role of the office, while on the other hand tenants that are transacting in our markets are paying a premium to elevate the quality of the real estate that they’re delivering to their employees,” says Peter Brindley, executive vice president and head of real estate at the Paramount Group. “We are continuing to