The indicators of waning demand for offices from institutional investors continue to mount. The biggest single takeaway from Probitas Partners’ 2021 Institutional Investors Real Estate Survey was a 41 percent plunge in interest in the asset type from when the firm last conducted the survey in 2019.
Probitas said it did not undertake a survey in 2020 because it felt the market disruptions caused by the pandemic from last spring would obscure key trends instead of defining them. One consequence of that was movements in sentiment pre-covid to now became stark.
In 2019, offices were third most of interest to institutional investors, behind multifamily and warehousing and logistics investments, with 41 percent of respondents targeting the sector. While multifamily and residential continued to attract the most interest, just 16 percent of investors said they were targeting offices in 2021.
Meanwhile, investors feared reaching a cyclical high point most in 2019, a year in which many in the private real estate sector discussed ‘black swan’ events. Secondarily then, they feared too much money was flooding into the sector, driving down returns. While the unpredictable pandemic event materialized, it did little to reduce concerns about too much capital flooding into real estate, driving down returns. Then, like now, investors also feared that money was chasing too few quality targets. Then, that concern centered specifically around managers. Today it centers on direct deals.