Editorial|&utm_term=|Website-Editorial-NAT(Website)|"> Auction.com. The sale was the most prominent office closing for the online marketplace during the month of October, during which it closed more than $281 million in commercial assets.

With office being one of the slowest commercial real estate sectors to recover from the recession, GlobeSt.com was wondering if office recovery nationwide in terms of leasing, rental rates and occupancy rates was keeping up with these high sales figures. We spoke with Rick Sharga, Auction.com's EVP, to get his take on the subject.

GlobeSt.com: Is the office recovery (i.e., leasing, rental rates and occupancy rates) keeping up with sales-price increases in this sector?
Sharga: In a word, no. The pricing is out ahead of the fundamentals. There's been a lot of money available at a low cost, capital has been very available and you have limited inventory, too, so we're seeing these factors combined drive up prices. Things are trending in the right direction: vacancy rates aren't as high as at the beginning of the recovery, but the market is still not quite at its pre-recession peak. The market will continue to improve, and the fundamentals will catch up over time enough to justify these prices. If you're investing in properties, you're looking at costs and returns. As jobs improve, so does the need for more office space, and rents should follow. It's not that we're seeing overinflation to the point where fundamentals will never catch up—that's not where prices are—but the imbalance shouldn't cause alarm.

GlobeSt.com: What is the foreign-investor mind-set regarding office properties given that this sector has been slower to recover than others?
Sharga: There's probably a longer-term hold strategy among foreign investors than domestic ones, and we're probably looking at investors with a reasonably long horizon. But relative to other investment options out there, US office real estate looks pretty good to foreign investors. It looks like the US is on a path toward steady job creation, which will ultimately adjust fundamentals as we go forward, even if they're paying more than the market suggests. If you have a longer-term view on the property, you're looking at returns based on cash flow rather than price appreciation, so it's a good market for patient investors. The key component is office properties here are a good investment for patient money as compared to other options, and it's viewed as a reasonably safe investment as compared to other things in other parts of the world right now.

GlobeSt.com: How do foreign investors view office development as opposed to purchasing existing buildings in the current market?
Sharga: Auction.com doesn't sell a lot of land to be developed, so I can only answer this observationally. We don't see a huge difference between foreign investors and domestic investors when it comes to this question. There's probably enough office available and it's selling at a price slightly beyond the fundamentals, so it wouldn't make sense to start developing a whole lot more. We're not at the inflection point where enough office capacity has been taken up to begin building in earnest. If anything, foreign money is a little more cautious because it doesn't have the local market expertise that a local regional investor might have.

GlobeSt.com: How much longer do you believe the ramp-up in office pricing will continue?

Sharga: Our research group believes the valuations will probably continue to go up at least through 2018. Occupancies are getting better, which is driving up rental prices and that does help with pricing.