2024 Single-Tenant Office Quarterly Sales Volume & Cap Rates

After a challenging 2023, where only $7.9 billion in sales were recorded for the entire year, the single-tenant office sector posted its strongest quarter since late 2022. Investment sales activity showed an incredible 77.5% increase quarter-to-quarter, logging more than $3.2 billion in transactions. We have yet to see larger portfolios or other signature assets that would drive totals even higher trade frequently, but robust activity for office and medical buildings at lower price points – sub-$25 million – allowed the quarter’s transaction count to increase 76% in the last three months. While it’s too early to say if the office market is moving towards recovery, investors should be encouraged to see this latest momentum.

The most prolific buyers this quarter were public REITs, contributing to nearly half the sector’s acquisition activity. This represents a significant deviation from previous years, when REITs were present but nowhere near the top ranking. With a pullback from both private and institutional investors, public REITs were able to secure dominant market share to begin the year.

After a decade of slow, declining trendlines for net lease office cap rates, the last few quarters have reported steeper increases. At the end of first quarter 2024, average rates sit at 6.81% – up 11 basis points from fourth quarter 2023 and up 51 basis points from this time last year. The office average is now the highest recorded since year-end 2015. Rates are expected to continue climbing, although the pace of escalation is likely to slow. It’s possible we could see average cap rates for the net lease office sector surpass the 7% mark this year, but with interest in healthcare assets leased by stronger credit tenants, cap rates could just as easily stabilize.

—Posted June 30, 2024.