A building boom is under way in major markets as Real Estate Investment Trusts increasingly invest in new developments rather than pay inflated prices for existing properties.
Office REITs plan to spend nearly $11 billion on new projects, primarily in New York and San Francisco, Bloomberg News reported. That’s the largest investment in at least a decade, according to data from Green Street Advisors.
Boston Properties, Vornado Realty Trust and Kilroy Realty Corp. are leading the investment, according to Bloomberg. SL Green’s 1 Vanderbilt is also set to add about 1.6 million square feet of office space to Midtown.
Investment in existing office space by sovereign wealth funds and pensions has helped push prices in central business districts in six major markets 16 percent above the 2007 peak, according to data cited by Bloomberg.
Returns on existing buildings have consequently fallen, leading REITs to sell off assets and instead develop properties, Michael Knott, managing director of Green Street, told Bloomberg.