Key Takeaways
- The global office market is moving from a period of correction toward recovery, although the progression will be highly selective and will create different opportunities across regions, markets, and investment segments.
- The recovery will be determined principally by market, location, and asset quality. Limited development pipelines and a shortage of modern space should support select development and repositioning opportunities, but only where achievable rents justify construction and capital costs.
- We are increasingly supportive of selective re-entry into the sector. However, performance will vary materially by region, metropolitan market, micro location, building quality, and tenant profile.
The global office market is moving past its post-pandemic malaise and is engaged in the early stages of recovery. Leasing activity is improving, transaction markets are beginning to reopen, credit is increasingly available, and capital values are stabilizing across a growing number of markets. Several years of limited development have also reduced new supply, creating pockets of scarcity as occupiers continue to prioritize modern, well-located office space. These conditions are creating a more constructive backdrop for the sector, although the recovery remains highly selective and considerably more nuanced than in prior cycles.
The recovery has varied materially across regions, metropolitan markets, micro-locations, and individual assets. Asia Pacific has generally experienced the strongest post-pandemic occupier recovery, supported by higher office attendance and stronger economic growth, although conditions differ significantly by market. Europe offers some of the clearest examples of constrained prime supply and robust rental performance. In the United States, improving leasing and absorption across select gateway and growth markets are encouraging, but elevated vacancy, weak office-using employment growth, and lower attendance continue to constrain the broader recovery. Vacancy is also highly concentrated: according to JLL, 10% of U.S. office buildings account for more than 60% of national vacancy, 30% account for 90%, and nearly 40% report no vacancy. These figures underscore that office is not a single, uniform market, despite what headline statistics may imply.
Occupiers are increasingly consolidating into buildings that offer the location, efficiency, amenities, sustainability credentials, and workplace experience necessary to attract employees and justify the commute. This flight to quality has created a growing divide between prime and secondary offices. In many markets, high-quality buildings face limited availability and improving rental prospects, while less competitive assets continue to experience weak demand, significant capital requirements, and reduced financing and exit liquidity. Prime and secondary offices should therefore be viewed as fundamentally different investment propositions rather than as variations within a single sector.
Despite improving fundamentals, office assets remain operationally complex, capital intensive, and expensive to lease, maintain, and reposition. Tenant improvements, leasing commissions, recurring capital expenditure, sustainability requirements, and extended lease-up periods can materially affect returns. Successful investment strategies will therefore require more detailed asset-level underwriting, greater conviction regarding location and building competitiveness, and a realistic assessment of the capital required to sustain occupancy and income.
The office sector opportunity cannot be evaluated solely through a regional or market-level view; and, the preferred approach to re-entry will also depend on both strategy and risk profile. Private equity may offer substantial upside where assets can be acquired at significant discounts and repositioned tactically, but it carries the greatest operating and execution risk. Public equity can provide liquid exposure to experienced platforms and high-quality portfolios. Private and public debt will likely offer more attractive risk-adjusted exposure in many markets by providing current income and greater structural protection while the recovery matures.
In the full report, we examine the underlying drivers of the office recovery and compare conditions across the United States, Europe, and select markets in the Asia-Pacific region. We also consider relative value and opportunities across major investment markets through both private and public markets. Access the full report for deeper insights into the next chapter of the global office sector.
Risk Considerations
Investing involves risk, including possible loss of principal. Past Performance does not guarantee future return. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed. Potential investors should be aware of the risks inherent to owning and investing in real estate, including value fluctuations, capital market pricing volatility, liquidity risks, leverage, credit risk, occupancy risk and legal risk. All these risks can lead to a decline in the value of the real estate, a decline in the income produced by the real estate and declines in the value or total loss in value of securities derived from investments in real estate. Fixed-income investment options that invest in mortgage securities, such as commercial mortgage-backed securities, are subject to increased risk due to real estate exposure.
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