Why Office Transaction Volumes Are Stagnant

Peter Muoio is the chief economist for Ten-X.

Office deal volume nationally has increased only slowly since 2015, thanks to weak fundamentals that are now beginning to deteriorate. Generally, the asset class has seen high vacancy rates and new trends, like telecommuting and file storage, in the office space that has led companies to shed office space. While deal volumes have increased slowly, they are beginning to speed up. Office deal volume has been consistent since 2017, but bumped up 17.5% in the third quarter over the second quarter 2018 and is up 15% year over-year to $34.3 billion, according to Ten-X Research. However, while the quarter was strong, overall office volume trends are slow.

“Year-to-date in 2018, office volume, $92.6 billion, is 3.6% lower than in the same period 2017, $96 billion, illustrating this flat trend in volume,” Peter Muoio, Ph.D., EVP of Ten-X and a speaker at the recent Trigild Lender Conference in San Diego, tells GlobeSt.com. “We also think a slowdown in deal volume could be in store for 2019. Interest rates are on the rise and cap rate spreads are tight, and we expect cap rates to drift higher in 2019 in accordance with those pressures. This would put downward pressure on valuations, which may make sellers reluctant to complete deals.”