The Real Deal New York

New office spending by REITs highest in a decade

Real estate investment trusts opt to build as existing properties become more expensive

July 09, 2014 01:45PM

20140709_1-Vanderbilt

1 Vanderbilt renderings

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.

Last month, the New York Building Congress reported that office construction between 2013 and 2015 is expected to advance at the fastest pace since 1990. [Bloomberg News]Tom DiChristopher

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