REITs Abandon Industrial, Focus on Suburban Office Assets

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The period following the recession marked a period where REITs began adding  foreclosed and distressed properties to their portfolios for great bargains. And now that these REITs have had half a decade to re-tenant and revitalize their buildings, we are noticing that a great number of these buildings are being placed back on the market by these same REITs that were so anxious to gobble them up.

Compared to last year, the nation’s REITs are selling more property than they are buying – the spread has almost doubled in a year’s time; the pace of REITs selling properties is up about 25%. We have seen a large number of REITs unloading their industrial properties and investing more money in adding suburban office buildings to their portfolios as “value-add” properties. The numbers show that office purchases are up 37% from last year while their sales are holding pretty even.

Why are office buildings so attractive to REITs? Office leasing has changed relatively little in the past 50 years, especially compared to industrial leasing, which has evolved with the changing logistics and transportation industries, and retail leasing, which evolves as constantly as the consumer does. Office assets are considered safe and secure because other than buildings becoming greener and having smaller floor plates, very little has changed. Investors feel that if they make an investment in an office building that they will receive a fairly constant income stream from the asset for several decades. REITs have shown particular interest in medical office and tech space, especially when located in “money districts” – areas around Beltways or within walking distance to key business centers.

The recession has caused many REITs to show their true colors. Most have disposed of their non-core assets to focus on the properties they feel will provide most long-term benefit to their portfolio. Some speculate the REITs have had a few years to shore up their balance sheets and shake the feeling of uncertainly left by the downturn several years ago. REITs have become more comfortable in investing and are changing the ways they do things in order to be successful.

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