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Investment Notes

Sales of significant office properties totaled just $2.5 billion in February 2008, a 95 percent drop from a year ago and the lowest monthly total in five years, according to a recent report by Real Capital Analytics Inc. In addition, the value of deals reported under contract fell slightly in February, indicating activity is not likely to improve significantly over the near term.

For the first two months of 2008, office sales totaled just $6.8 billion, which is just 10 percent of the $68 billion transacted in the first two months of 2007. The $6.8 billion of volume also compares poorly to the volume of new offerings which has totaled nearly $20 billion so far in 2008.

New listings of office properties outpaced closings by 4-to-1 in February, up from 3-to-1 in January. Over the past six months, offerings have exceeded closings for two-thirds of all markets nationally. Significant inventories of office properties for sale exist in Sacramento, South Florida, Southern California, Northern NJ, Houston, Dallas and even Manhattan.

While there are now more sellers than buyers, there is little evidence of distress selling or "fire sale" pricing, says the New York City-based research firm. Asking prices remain fairly aggressive although sellers are more willing to negotiate, but only to a point. Sales price as a percentage of original asking price has dropped to 94 percent down from just over 95 percent prior to the credit crunch. As the credit crunch draws on, pressure to sell will mount and pricing largely depends on this dynamic.

As for the deals getting done, several trends are emerging. A greater proportion of sales involve core or stabilized assets as opposed to value-added strategies. While median cap rates are up 50 basis points nationally since August, yields for the top assets have seen less than a 25 basis point rise. Cap rates for the lowest quality office properties are up by over 75 basis points.

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