- Office property sales rose sharply in early 2025, with January seeing $6.2B in transactions—an 80% year-over-year increase.
- Although occupancies at major REITs remain lower than pre-pandemic levels, leasing activity has improved, and some property values have begun to tick up.
- Lower coupon rates on maturing debt and increased CMBS exposure to office assets suggest a market that is adjusting rather than collapsing.
The office market, battered by falling occupancies and rising debt, is showing tentative recovery signs, as reported by Globe St.
New data from Trepp reveals a surge in office property sales and transaction volumes, indicating that some investors believe the worst may be behind them—even as risks remain elevated.
Sales Momentum Returns
Office sales activity has rebounded significantly. In January 2025 alone, $6.2B in office assets changed hands, an 80% increase over the same month in 2024. Although property prices are still down over 20% from their 2022 peak, a slight uptick in Q4 2024 suggests a potential bottoming of the market.
The REIT Landscape
Major office REITs continue to face elevated vacancies. Vornado Realty Trust’s occupancy fell to 88.8% in 2024, down from 96.7% in 2019. SL Green Realty dropped from 96.2% to 92.5%, and BXP from 93.0% to 87.5%. Kilroy Realty experienced a sharper decline to 82.8%. The exception was COPT Defense Properties, which increased occupancy from 93.1% to 93.6%.
Despite challenges in occupancy, growing office property sales and renewed leasing activity at firms like Vornado and SL Green highlight the uneven recovery across the sector. Meanwhile, BXP and Cousins Properties saw reductions in their leased portfolios, underlining persistent volatility.
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Debt and Financing Conditions
Debt markets have shifted as well. Coupon rates for debt maturing between 2025 and 2026 have fallen for several REITs, with Vornado’s average rate dropping from 5.00% to 3.83% and BXP’s from 6.16% to 3.20%. However, some, like Empire State Realty Trust, faced rising rates.
At the same time, office property sales have gained momentum, contributing to renewed investor interest in the sector. Additionally, office-backed loans now make up a larger share of CMBS conduit collateral, rising to 16.13% in Q1 2025 from 13.03% a year prior, reflecting both opportunity and ongoing sector risk.
Why It Matters
The uptick in office property sales, along with signs of price stabilization, could mark an important turning point for the office sector. However, high vacancies, large amounts of maturing debt, and the evolving post-Covid work environment continue to pose challenges.
What’s Next
Investors and REITs will likely remain cautious but active as they navigate a reshaped office market. Watch for further shifts in leasing patterns, debt restructuring, and property valuations as 2025 progresses.
