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Industrial and multifamily asset classes will remain the darlings of the commercial real estate market this year. The two asset classes have become core investment classes for many investors because of the strong demand and rent growth. On the flip side, office properties will lag behind, largely because of the management responsibility and cost.

“Industrial and multifamily has certainly become the bread-and-butter for multifamily investors,” Mike Longo, SVP at CBRE, tells GlobeSt.com. “Office has become a third or second tier. If you look at the best performing assets over the last seven years in terms of total return, the top performers have been triple net assets, followed by industrial and multifamily. Self-storage is also on the list. The worst performers from a total returns standpoint has been office, hotels and retail.”

The property management cost of office assets has increased sharply. The operations cost combined with the high price tag of office assets have made them challenging investments. “The reason that office has underperformed is because the cost to operate an office building has just skyrocketed immensely, and capital has recognized that,” says Longo. “Unless you have core infill stability, yield and guaranteed yield, investors are pretty shrewd on how they are going to underwrite those capital costs.”

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Kelsi Maree Borland

Kelsi Maree Borland is a freelance journalist and magazine writer based in Los Angeles, California. For more than 5 years, she has extensively reported on the commercial real estate industry, covering major deals across all commercial asset classes, investment strategy and capital markets trends, market commentary, economic trends and new technologies disrupting and revolutionizing the industry. Her work appears daily on GlobeSt.com and regularly in Real Estate Forum Magazine. As a magazine writer, she covers lifestyle and travel trends. Her work has appeared in Angeleno, Los Angeles Magazine, Travel and Leisure and more.

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