With return-to-office mandates kicking in over the next month, the office sector remains in flux. Vacancy rates in major cities are at historic highs, and distressed office buildings continue to hit the auction block. The question is: what’s the real price for these empty towers?
A recent poll asked investors what they’d pay for a vacant high-rise at auction. 31% said $20 per square foot, 19% would go up to $50 per square foot, and only 6% saw value at $100 per square foot. The rest wouldn’t take it at any price.
Office valuations have collapsed in some markets. In San Francisco, buildings that sold for $300 million in 2019 are now trading below $100 million. In Chicago and Los Angeles, class B and C office spaces are struggling to justify even $50 per square foot as demand dwindles. Meanwhile, lenders are offloading distressed properties, with many buildings going back to the banks.
The big question: Where does office go from here? Some investors are scooping up properties at deep discounts, betting on a long-term rebound or conversion potential. Others see a sector in permanent decline, where only the best-located, highly-amenitized buildings will survive.
If you were at the auction, what would you bid for an empty high-rise? Or is office a no-go at any price?