THE OFFICE INVESTMENT SALES MARKET
Written by: Brady Lang
Brady Lang focuses on helping the Dunsmoor Fude brokerage team craft tailored strategies for each client based on their underlying financial objectives. He is closely involved with the process of executing the team’s leasing and sales processes and maintains up to date financial models to help the team constantly advise clients how to maximize value. Keep reading to get Brady’s take on what the current office investment sales market looks like.
How has COVID-19 impacted the Columbus office investment market?
The pandemic has forced all participants in the office investment market to reevaluate their acquisition, disposition, and asset management strategies. What were once considered safe investments due to their long-term leases and stable income streams, office buildings now require much more risk tolerance which has put downward pressure on values and overall transaction volume. This shift is largely due to the uncertainty the pandemic has created as to whether the office is necessary to a company’s operation. These concerns aren’t just anecdotal, in 2020 the Columbus office market experienced negative absorption of 927,569 SF. YTD absorption remains negative at roughly 975,200 SF.
What are some of the largest sales that have occurred this year?
While the pandemic has clearly had a negative impact on the Columbus office market, some high-profile sales that occurred in 2021 are worth mentioning. To date, 88 transactions have occurred totaling approximately $240 million or $120/SF. Of those 88 transactions, only five buildings sold for at least $5 million. Most notably, 910 John Street which was purchased for $120 million or $550/SF by the World Bank of Qatar. This sale generated a lot of interest as it reached unprecedented price/SF levels and proved that Columbus is garnering attention from investors not just domestically but around the globe. Other notable sales include 6670 Perimeter Dr and 5000 Arlington Centre Blvd both of which eclipsed a $5 million purchase price. Most recently, 7575 Huntington Park Dr, a once single-tenant and now vacant office building sold for $6.7 million which is roughly $53/SF. Despite the negativity created by the pandemic, these sales exhibit the resiliency of the Columbus office market and leave reason for optimism as we head into a new year.
Do you anticipate activity slowing down or ramping up in 2022, and why?
As companies continue to evaluate the work from home model, they will soon learn the impact on productivity, culture, and costs whether positive or negative. My assumption is that many companies will realize the office has a positive impact on these metrics as well as the overall morale of employees due to the separation of work and home. For some, this realization has already started to begin. Trend-setting companies such as Tesla, Abbott Laboratories, Goldman Sachs, Comcast, Johnson & Johnson, and Wells Fargo have all announced their post-pandemic plans for a full return to the office. This shift in attitudes paired with the declining covid-19 case load will alleviate many concerns of risk-averse investors. Additionally, the unprecedented cap rate compression we are seeing in product types such as Industrial and Multi-Family will result in many investors being priced out of those markets, forcing them to reconsider other product types such as Office. This potential influx of capital could be realized as early as next year, especially when the continued alleviation of pandemic concerns is considered.