The C&W study, "Short-term volatility, long-term stability," finds that, barring a prolonged economic downturn, fundamentals in leading US office markets will remain sold and will "give owner/investors the upper hand once again when the economy rebounds." The report acknowledges the hits that the office investment arena has suffered since its heyday of 2006-07, which was the all-time peak for investment volume in the US office market. The researchers also point out that office investment transaction volume today "is the lowest it's been in nine-plus quarters."

Despite continuing problems in the office market and the economy in general, the report cites three major factors that bode well for US office investors in the long run and explains why it is better positioned than in previous cycles to weather a downturn: solid supply-side fundamentals, strong tenant balance sheets and the diversification provided by the global economy.

Regarding supply-side fundamentals, C&W points out that "unlike previous cycles, which were burdened by excessive amounts of new supply, construction across leading investment markets has been held in check over the last four years." In addition, the report notes, the credit crunch is making it difficult for developers to line up construction financing, which "will undoubtedly delay the start of some projects that have yet to receive lender approval and further temper the additions to new supply."

In its analysis of tenant balance sheets, the C&W report says that the strong cash positions of tenants suggest that they will be able to meet their rent obligations. In addition, tenants for the most part have been conservative in their leasing in recent years, a contrast to the frenzied pace of leasing in 2000-01 "when unprofitable start-ups took significant additional space for growth that was never filled," the report concludes. Combined with the strong supply-side fundamentals, the strong tenant balance sheet should help to prevent the huge buildup of sublease space like the glut that dragged down the office market during the last downturn.

The third factor, global economic diversification, bodes well for the long-term outlook of US office markets because the economic risk today is more diversified than in previous cycles, according to the report. A recent survey of S&P 500 listed companies shows more than 44% of annual sales in 2006 were derived from outside the US, up from 27% from five years earlier. This revenue diversification "will help cushion the blow of a recession for US businesses," the C&W team says.

The research team has found the amount of capital committed to commercial real estate continues to rise despite the disarray of the capital markets. It notes REIT equity is on the rise and US pension funds have indicated they too will increase their allocation to real estate during the next three years. The report does not mention any specific office sales, but it is pointed out that "well-leased and well-capitalized transactions in solid markets are attracting attention."

In the report, the team anticipates a number of factors will push more office properties to market, particularly those office investment funds that were formed before 2005 because they "will soon need to return money to investors and make portfolio adjustments." In addition, there will be individual cases that drive deals to market because of a seller's unique circumstances. Recently, for example, Los Angeles-based office REIT Maguire Properties said it is marketing its Orange County assets for sale. Those properties include Park Place, a 105-acre real estate campus that includes 2.3 million sf of space in nine buildings. Industry sources tell GlobeSt.com that despite whatever factors may be driving Maguire to sell its Orange County properties, office projects like Park Place and others in the Orange County Airport Submarket have always been considered a good bet for the long term.