2012 Office Index: Prices Flatline

January 25, 2013

The office market may never have experienced a period as stable as 2012. Rents stayed level. Vacancy declined only slightly. Expenses barely increased. Capitalization rates changed only marginally. The result is that prices for office buildings toward the end of 2012 are not much changed from what they were in mid-2011. If you bought an average office building in mid-2011 in the average metropolitan area, chances are it is worth the same in late 2012 as it was when you bought it.

Of course, not everywhere is average. The SecondStreetIndex office chart measures average data across the U.S. Some markets and some buildings did go up in value, and some declined. But the changes are not as pronounced as they have been in earlier years.

Medical offices are in stronger demand than are general offices. Some metropolitan areas have experienced declining vacancy, rising rent, and enough demand to warrant new construction. But most continue to experience vacancy on the order of 10% to 15% or more. That is enough to suppress rents. Until that changes, the outlook for most office buildings is that conditions (and prices) are likely to remain the same.

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