Real Estate Alert: Office Sales Drop 41%; Eastdil Retains Lead

The U.S. office-sales market saw its slowest quarter in a decade as the coronavirus pandemic brought the sector’s long-running bull market to an abrupt end.

A total of $28.8 billion of office properties traded in the first half, a 41% plunge from $48.9 billion during the same period last year, according to the Real Estate Alert Deal Database, which tracks trades of $25 million and up. Just $7.1 billion of those sales took place from April through June, the lowest quarterly total since 2010.

Eastdil Secured held on to its perch atop the broker rankings despite a 55% drop in its first-half sales. Newmark moved up to second by keeping its volume relatively flat, while CBRE slipped to third. JLL, bolstered by its acquisition of HFF a year ago, took fourth and Cushman & Wakefield was fifth as of June 30.

The year started strong, with $21.7 billion of sales in the first three months, making it the most-active opening quarter since 2015. But in March, as social-distancing measures took hold and the economy went into a slump, marketing campaigns and deals under contract paused or stalled out completely.

Going forward, pros expect some improvement over the dismal second quarter. But no one anticipates a return to pre-Covid levels of activity anytime soon.

“We expect new offerings to the market to gradually improve through the summer,” said Chris Ludeman, global president of capital markets at CBRE. “We see more product launches coming in the fall, post-Labor Day, but capital will be careful, disciplined and geared more toward stabilized core-plus and core offerings.”

There’s broad agreement that activity will center around prime properties and those with stabilized rent rolls that require little guesswork when it comes to revenue. That’s largely because lenders are willing to finance such acquisitions.

“Significantly, the financing markets have opened up dramatically,” said Roy March, chief executive at Eastdil. “Fixed-rate financing for office that has long [weighted average lease terms] in core markets is substantially back to where it was pre-Covid. As a result, there’s a confidence that’s come back to the market.” He said borrowers are finding “plenty of depth from life companies and CMBS” for financing core properties, but that value-added deals “are continuing to have more challenges.”

Perhaps the largest obstacle hanging over the market, for both buyers and lenders, is a lack of clarity when it comes to estimating revenues and valuations. “Buyers are underwriting assets right now for the unknown, and it’s the unknown about which way rents are going and what’s the future of office demand,” said Mark Van Zandt, a managing partner at New York-based BentallGreenOak. “There are a lot of profound questions being debated.”

At the moment, tenants are delaying decisions about leasing — and for the long term, they are examining just how much space they will need and where. In the second quarter, office vacancy nationwide increased to 13.7% from 13.2% in the first three months of the year, the largest one-quarter rise since the depths of the Great Recession in 2009, according to a Cushman report. “We expect the national vacancy rate to rise over the coming quarters leading to downward pressure on effective rents,” it said.

The flow of listings is likely to remain slow as owners wait for some clarity in the broader economy. “Sellers don’t want to sell unless they need to at this point,” said Craig Deitelzweig, president and chief executive officer at Marx Realty of New York. “Basically, 2020 will be a lost year for office sales.”

But some believe that could change quickly and dramatically when leasing activity resumes. “Once investors and lenders start to see some green shoots or positive leasing momentum they will adjust their pricing . . . and more value-add properties will start trading,” said Jaime Fink, senior managing director at JLL and co-head of its national office practice.

When activity resumes, many of the dynamics that were driving the market at the start of the year will still exist, such as low interest rates and an abundance of dry powder targeting U.S. real estate. “In relatively short order, historically low interest rates will again trump fundamentals,” said Doug Harmon, chairman of capital markets at Cushman. Assuming that a vaccine will have alleviated the coronavirus crisis by next spring, he said investors “will be back on track to that frustrating, competitive and somewhat desperate search for yield, where real estate investments will provide the most attractive risk-adjusted returns.”

However, other pros see a long road to recovery that will parallel the last market downturn. “The reality of the situation is that we were 10 years into a real estate cycle, and already values and fundamentals were going sideways,” said Van Zandt of BentallGreenOak. “At best, Covid was the straw that broke the camel’s back and has created the market correction that many in the market were expecting for years.”

Along with the second-quarter slowdown came a reshuffling in the brokerage rankings. While Eastdil remained on top with $5.4 billion of sales, its share of brokered deals slipped to 21.9%, from 27.9% a year earlier. Newmark’s $5.1 billion tally was off just 3% from last year’s first half, giving it a 20.5% market share, up from 12.2% at the same point last year. That moved it into second place, up from fourth at both midyear and yearend 2019.

CBRE was a close third with $5 billion of activity, a 28% volume decline but good for a 20.2% share. JLL racked up $4.8 billion of sales — nearly double its figure for the same period last year but some 46% below the combined pre-merger volume of JLL and HFF. That gave it a 19.2% share of first-half brokered sales. Cushman closed $3.5 billion of sales, down 54%, for a 14.1% market share.


Cushman’s sales decline matched that of its strongest market, New York, which remained the nation’s busiest — but not by much. Its $4.13 billion of activity was barely ahead of Boston’s $4.07 billion, which represented a 6% increase from a year earlier. The San Jose/Silicon Valley market, which was the second most-active in the first half of 2019, dropped to third as its volume fell 36% to $3 billion.

Greater Boston benefited from its high concentration of life-sciences properties, a bright spot in the office landscape. Once a specialized niche dominated by a handful of buyers, that segment has grown in recent years and drawn a wider pool of investors, largely due to the strength of its leasing fundamentals. The coronavirus crisis and a subsequent influx of federal and private dollars into the sector have added to leasing demand from life-science companies, including those involved in the push to develop a vaccine and treatment for Covid-19.

“Investors are certainly more optimistic about rent growth and expansion in that category,” said Rob Griffin, co-head of capital markets at Newmark. “In 35 years . . . I have never seen the wind behind something like it is for this asset class right now.”

The broker rankings are based on property transactions that closed during the first six months of 2020 and involved full or partial stakes valued at $25 million or more. When multiple brokers shared a listing, the dollar credit was divided evenly, but each broker was credited with one transaction. Only brokers for sellers were given credit. Portfolio transactions were included if the overall price was at least $200 million or if at least one property in the portfolio had a value of at least $25 million.