Top 5 Markets for Office Transaction Growth
- Jul 24, 2020
Nationwide, transaction volume declined by 24 percent year-to-date through May compared to a $25.9 billion drop during the same interval in 2019, Yardi Matrix data shows. As the pandemic continues to force office-based businesses to allow most of their employees to work from home, office occupancies vary significantly among major metros. But as is often the case during times of instability, investors are eyeing more secondary and tertiary markets for value-add opportunities.
The metros on this list saw as much as a fortyfold increase in their transaction volume, while in other markets, investment plummeted by more than 90 percent. It’s no surprise that no major office market made this list, even though the five metros here only account for 2.6 percent of the nation’s overall transaction volume.
Although the metro’s population has decreased by 1.6 percent since the 2010 census, according to July 2019 estimates, employment growth and economic diversification were very much underway. However, as a result of the current crisis, the metro lost more than 230,000 positions in the 12 months ending in April. Overall, the unemployment rate reached 16.4 percent in April, a large jump from the 3.5 percent recorded for the same time frame last year and the highest level in the metro’s recorded history. But as measures meant to flatten the curve were relaxed, the preliminary unemployment rate is expected to move down, closer to the national average.
Thanks to Fortress Investment Group’s $180 million acquisition of the first three buildings of Westinghouse Cranberry Corporate Headquarters, Pittsburgh’s transaction volume rose 533 percent year-to-date through May, to almost $210 million. Columbia Property Trust sold the 824,000-square-foot property, which is leased to Westinghouse. The deal was subject to a $135 million loan from Column Financial Inc.
4. Brooklyn, NYC
Brooklyn’s office market had seen a significant expansion before the coronavirus outbreak, primarily thanks to a series of companies attracted by the metro’s highly educated workforce and considerably lower cost of doing business compared to its neighboring boroughs. In the first months of the pandemic, Brooklyn started losing jobs. Overall, almost 1.5 million New York City workers remained jobless in the 12 months ending in April.
Compared to the same period last year, overall transaction volume rose 582 percent in the first five months of 2020 to $164.8 million, on the back of a single blockbuster deal. Urban Edge Properties acquired the two-building Kingswood Center from Nightingale Properties, which completed the project’s second phase last year. The 240,000-square-foot asset changed hands for $164.8 million. The properties include roughly 100,000 square feet of retail space, with tenants such as New York Sports Clubs and T.J. Maxx. This was the sole major transaction in the metro year-to-date through May.
3. North Central Florida
Before the pandemic, North Central Florida had a rapidly growing employment market, which has been hit hard by the measures taken to prevent the spread of the virus. In total, more than 41,000 people lost their jobs—almost half of which were in the leisure and hospitality sector—throughout the 12 months ending in April. As a result, the unemployment rate in Gainesville, the metro’s largest city, rose to 8.8 percent in April—up 580 basis points year-over-year—and recorded the highest level in a decade.
While only two office deals closed year-to-date through May in North Central Florida, their combined volume represents a spike of 941 percent compared to the same period of 2019. In Gainesville, Florida Cancer Specialists acquired the 46,500-square-foot North Florida Regional Medical Center for $18.2 million. And in Alachua, an individual investor paid $12 million to Concept Cos. for a 43,180-square-foot research and development property. According to public records, the buyer took out an $8.3 million acquisition loan from Valley National Bank.
2. White Plains, N.Y.
With New York among the metros severely impacted by COVID-19, the decline in employment has been substantial across markets. As the state halted all nonessential development activity during the stay-at-home order, the construction employment sector lost almost 120,000 positions, for a 40.7 percent drop. After reaching a cycle peak of more than 350,000 square feet in 2013, deliveries started slowed to only 40,000 square feet last year. Pre-pandemic forecasts stated that in 2020, completions would rise by more than three times 2019’s levels.
Investors focused more on White Plains, where transaction activity increased in the first five months of this year by 1,617 percent—to $114.7 million—compared to the same period last year. Westport Capital Partners sold Grand Street Plaza, a two-property campus in the metro’s White Plains-West submarket, to Jack Sitt Real Estate for $42.5 million. The deal was subject to a $27.6 million loan from Citibank.
1. Oklahoma City
Oklahoma City has seen a steady influx of people over the past decade, with its population growing at a rate of 12.4 percent year-over-year, as of July 2019. Oklahoma is among the states with the lowest wages in the country, so companies are incentivized to choose the metro for their operations. As a result, Oklahoma City had one of the lowest pre-pandemic unemployment rates. But as the metro lost 68,500 positions in the 12 months ending in April, the unemployment rate rose to 14.8 percent. That’s more than double the highest level in the past decade—6.6 percent in January 2010. The leisure and hospitality sector decreased by almost a third—losing 26,300 jobs—followed by the construction sector, which lost almost 12,000 positions. However, Skydweller Aero Inc. announced in June that it will relocate its headquarters to Oklahoma City, a move that could result in as many as 120 jobs.
Transaction activity rose in Oklahoma City by almost 4,000 percent in the first five months of 2020 compared to a total $169.9 million during the same interval in 2019. In a $124.7 million deal with Gardner Tanenbaum Holdings, an individual investor acquired two assets totaling more than 500,000 square feet. The sale—one of the largest commercial transactions in the city’s history—closed with the help of a $90.7 million loan from CIT Bank.
Yardi Matrix covers office buildings 50,000 square feet and above. As a result, this ranking reflects transactions within that set. Yardi Matrix subscribers have access to properties down to the 25,000 square-foot mark.