Why More Investors Are Seeking Office Buildings in Secondary Markets
Population growth, favorable tax environments and higher yields are driving more interest in secondary cities.
May 12, 2021 | Patricia Kirk | Wealth Management
Investors seeking higher yields on office acquisitions than core markets could provide have been realigning their investment strategies to target smaller markets over the last decade, as many Sunbelt cities saw high population growth. The pandemic, which expanded remote working opportunities, at least in the short term, accelerated migration to smaller markets in warm climates with a relatively low cost of living and high quality city life. As a result, employers are following the talent and investors are following the employers.
Some major investors have recently announced plans to focus on growing secondary and tertiary markets, including Highwoods Properties, an office REIT based in Raleigh, N.C., and the newly formed Cohen & Steers Private Real Estate Group, a dedicated private real estate investment team of New York-based global investment manager Cohen & Steers Inc.
Highwoods Properties, which focuses class-A properties in fast-growing secondary markets, recently agreed to acquire Preferred Apartment Communities’ office portfolio for $769 million, according to a press release. The deal included four class-A office assets with 1.6 million sq. ft in Raleigh and Charlotte, N.C., and a mixed-use redevelopment site in Atlanta slated for up to 600,000 sq. ft. of office space and more than 300 multifamily units. The portfolio also included a mezzanine loan on a newly built office building in Atlanta and a multi-tenant creative office project in Atlanta.
