Investors Back in US Office Market as Leasing Picks Up

After 5 years of decline, the US office market is showing signs of life as investors start acquiring discounted offices, including buildings burdened with debt or vacancy issues, per WSJ.

With a pick-up in leasing activity and more businesses requiring workers to return to the office, there’s renewed optimism for in-person work. International investors, in particular, are keen to capitalize on emerging opportunities, signaling a potential recovery for the beleaguered market.

Back to US Offices

The US office market is making a comeback after years of turmoil, with office building sales surging by 20% in 2024 to $63.6B, according to MSCI. This is a positive sign, though volume remains well below the pre-pandemic averages of $143B annually, per GlobeSt.

Still, glass half full—this is the first uptick in office sales since 2021, and brokers expect the trend to continue into 2025 as investors flush with capital look for opportunities.

Investors are focused on high-quality office buildings that are underperforming or burdened with debt, betting on value creation through renovations, leasing, or repurposing buildings. Some are even targeting outdated office properties, planning to convert them into apartments.

Confident Leasing

With businesses pushing for workers to return to physical office spaces, the demand for well-located, high-quality office buildings is growing.

Colin Connolly, CEO of Cousins Properties, shared that many tenants are expanding to accommodate the return of more employees, raising demand for additional space in cities like Atlanta, Austin, and Charlotte.

In addition to the uptick in leasing, some markets are facing office space shortages due to a halt in new construction over recent years, further driving demand in certain business districts.

Foreign Investors Return

Large international investors are also returning to the US office market. Norges Bank Investment Management, the sovereign wealth fund of Norway, made notable moves last year, investing in office properties across US cities like Boston, San Francisco, and Washington, DC.

It’s a clear signal of renewed foreign confidence in the sector, with Norges’ US real estate head, John McCarthy, stating their strategy is to invest in a market where others are still hesitating.

With a staggering $196.8B in available capital, opportunistic real estate funds are positioning themselves for a potential wave of acquisitions in 2025, fueled by favorable buying conditions.

Challenges Still Loom

While the office market started in 2025 on a firmer footing, challenges remain. High vacancy rates, loan delinquencies, and ongoing uncertainty about interest rates continue to hang over the sector. Many investors are still cautious and prefer to invest in other sectors, like multifamily housing or industrial properties, which have performed more reliably in recent years.

Meanwhile, sellers hoping that the Federal Reserve will lower interest rates to boost commercial property values may be disappointed. With the Fed signaling rates are likely to stay steady, more property owners may be motivated to sell, hoping to capitalize on the current momentum.

Opportunistic Moves

Some investors are taking on significant risk, investing in buildings that require heavy capital infusions but are located in prime locations near transportation hubs.

For example, New York-based RXR acquired a 49% stake in a Midtown Manhattan office tower, which is struggling with high vacancy rates and $1B in debt. RXR plans to invest over $300M to revitalize the building, betting the market will bounce back enough to attract new tenants.

What’s Next?

As more businesses adapt to hybrid work models and employee returns to the office increase, the demand for high-quality office space is likely to rise.

While challenges remain, the growing demand for office space and the capital influx from both domestic and foreign investors point to a more stable future for the sector in 2025 and beyond.