Public-private pricing disconnect for office is intensifying

May 24, 2023
  • Jacob Rowden
  • Elena Lanning

Source: JLL Research, Green Street, Real Capital Analytics

  • As office valuations have come under pressure in recent years, public pricing of office REITs has declined dramatically, to the point that implied yields are now at the highest levels in over a decade – 200 basis points higher than implied yields at the beginning of 2010.
  • Public pricing historically tends to overstate the ultimate market impacts during periods of volatility: during the Global Financial Crisis, public pricing of office REITs at one point reflected nearly a 75% decline in asset values, while private market asset valuations stabilized after just over a 20% decline.
  • Incremental declines to asset valuations and increases to yields have been driven by 11 rate hikes since March 2022. As the outlook shifts and rates are expected to plateau and eventually decline, upward pressure on yields will begin to wane.
  • Steeply discounted office REITs can weigh on office investment appetite: prospective buyers are able to acquire REIT shares for more attractive pricing levels than they would find acquiring assets directly.