The first quarter of 2025 proved challenging for investment sales in the office segment, despite some encouraging signs. Multi-tenant sales, which had shown promise in the fourth quarter of 2024, experienced a significant slowdown in Q1 2025, according to Northmarq. Meanwhile, single-tenant sales continued to face substantial difficulties throughout the quarter.
Although Trepp noted some improvement in transaction volumes, particularly with an uptick in office distress sales, the rise in special servicing also played a role in the market dynamics. Northmarq highlighted that higher interest rates made refinancing more difficult, while the persistence of hybrid work environments contributed to increasing vacancy rates.
In terms of numbers, total multi-tenant sales volume in Q1 2025 reached $10.58 billion, down 15.8% from $12.56 billion in Q1 2024 and a steep 44.4% decline from $19.03 billion in Q4 2024. Regionally, the Mid-Atlantic recorded $925 million in sales compared to $1.54 billion the previous year; the Midwest saw $829 million versus $1.88 billion; the Northeast posted $2.63 billion, up from $1.54 billion; the Southeast had $1.94 billion, down from $2.71 billion; the Southwest totaled $1.56 billion, falling from $2.41 billion; and the West reached $2.70 billion, an increase from $1.60 billion in Q1 2024.
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The average cap rate for multi-tenant properties rose to 7.60% in Q1 2025, compared to 7.23% in Q1 2024 and 7.52% in Q4 2024. Breaking this down by region, the Mid-Atlantic’s cap rate increased to 8.75% from 8.17%, the Midwest rose to 8.31% from 7.99%, the Northeast was at 6.79%, the Southeast climbed to 8.21% from 7.40%, the Southwest also stood at 8.21% up from 7.40%, and the West increased to 7.50% from 6.42%.
Regarding buyer composition in Q1 2025, domestic private buyers accounted for 61% of multi-tenant sales volume, domestic institutional buyers made up 17%, domestic user/other buyers represented 16%, domestic public REITs contributed 4%, and international buyers comprised 2%. This marked a notable shift from the overall 2024 mix, where domestic private buyers held 53%, domestic institutional 18%, domestic user/other 10%, domestic public REITs 11%, and international buyers 8%.
Single-tenant sales volume in Q1 2025 totaled $1.79 billion, a sharp decline of 56.2% from $4.09 billion in Q1 2024 and down 13.0% from $2.06 billion in Q4 2024. Regionally, the Mid-Atlantic recorded $114 million compared to $183 million the previous year; the Midwest dropped to $87 million from $834 million; the Northeast increased to $715 million from $461 million; the Southeast fell to $134 million from $800 million; the Southwest declined to $234 million from $1.09 billion; and the West totaled $506 million, down from $719 million.
The average cap rate for single-tenant properties rose to 7.21% in Q1 2025, up from 6.88% in Q1 2024 and slightly higher than 7.18% in Q4 2024. Regionally, the Mid-Atlantic cap rate edged up to 7.46% from 7.35%, the Midwest increased to 7.96% from 7.08%, the Northeast declined slightly to 6.88% from 7.19%, the Southeast rose to 7.08% from 6.91%, the Southwest remained steady at 7.08% compared to 7.14%, and the West climbed to 7.50% from 6.42%.
In terms of buyer mix for single-tenant sales in Q1 2025, domestic private buyers accounted for 31%, domestic institutional buyers made up 43%, domestic user/other buyers represented 23%, domestic public REITs had no share, and international buyers comprised 2%. This contrasted with the full-year 2024 figures, where domestic private buyers were 29%, domestic institutional 19%, domestic user/other 23%, domestic public REITs 26%, and international buyers 4%.
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