Economic Fundamentals for Office Properties and Shifts in REIT Portfolios 2007-2017

Abstract

Gateway cities have historically been the focus of institutional investors in office properties. Since the financial crisis, however, office markets in other cities have enjoyed greater demand and rising occupancy rates relative to those in gateway cities. REITs have positioned themselves to benefit from this relative strength in secondary markets, through a shift in portfolio activities to these markets rather than the traditional gateway markets that constitute the bulk of REIT portfolios. Economic fundamentals including population and employment growth have supported the performance of office markets in these cities. REITs appear to have taken advantage of their knowledge of local market conditions in order to anticipate these changes in fundamental conditions in office markets.

Keywords: office markets, REITs, gateway cities, secondary markets

JEL Classification: R3