Institutional investors overtook REITs as the largest acquirers of U.S. office buildings in the first quarter, a sign of widening demand that may push property prices up.
Buyers including pension funds, insurance companies and sovereign wealth funds added a net $1.39 billion to their office building holdings in the first quarter, compared with $1.1 billion for real estate investment trusts, according to data from CoStar Group. The shift signals that institutions are beginning to expand their holdings, after being net sellers last year.
“Hopefully that means that they’re down to their core portfolio and they’re going to start adding to it,” Christopher Macke, senior real estate strategist at CoStar, said in a telephone interview. “Assuming that the institutional folks continue their net buying and the REITs continue that as well, that should portend a positive direction for pricing in commercial real estate.”
Demand for commercial real estate is rising as the economy improves and yields remain low for fixed-income investment alternatives. Institutions were larger purchasers of office buildings than REITs were in three of four quarters last year, Mr. Macke said. They also were bigger sellers.
Investment-grade commercial property prices rose 2.2% in March from a year earlier, CoStar data show. Office sales more than doubled in the first quarter from a year earlier to $10.2 billion, according to Real Capital Analytics, a New York-based real estate data provider.