Office REITs are turning toward secondary markets, as cities such as New York, Washington and Houston face oversupply, according to a report in Urban Land.
“West Coast and Sunbelt markets continue to outperform on strong demand, while NYC struggles with new supply. Despite higher taxes, the young and educated labor pool has generally kept businesses in NYC, but the same can’t be said for other high-tax states in the Northeast like Connecticut, which has yet to fully recover from the recession,” said investment adviser Hoya Capital Real Estate.
Strong job growth in professional services and technology have benefited office REITs, but building has resulted in oversupply in key markets, leading trusts to make new investments in secondary markets.
Singapore-listed Manulife US REIT is just one example of an office REIT shifting its primary focus for potential acquisitions toward secondary markets such as Irvine, California. The REIT claims that “favorable conditions” in these markets have led to a 5 percent to 7 percent increase in rents over the last 12 months.