Norges Bank Spends $977M to Increase Stake in Office Buildings
Norges Bank Investment Management has acquired an additional 50.1% interest in eight office properties in Boston, San Francisco, and Washington, D.C. The investment was made for full ownership of the properties, which comprise collectively for about 3.66 million square feet.
The properties are 501 Boylston Street and 33 Arch Street in Boston; Foundry Square 2 (405 Howard Street) and 888 Brannan Street in San Francisco; and 800 17th Street, Evening Star (1101 Pennsylvania Avenue), Franklin Square (1300 I Street), and 25 Massachusetts Avenue in Washington, D.C.
The firm spent $976.8 million, which assumed a portfolio valuation of more than $1.9 billion. One of the buildings, 501 Boylston St., has $194.9 million in debt. Norges Bank Investment Management provides long-term management of the revenue from Norway’s oil and gas resources. The fund holds more than $1.8 trillion.
“By taking full ownership of nearly 3.7 million square feet across Boston, San Francisco, and Washington, D.C., we're demonstrating our conviction that well-located, high-quality office buildings will continue to deliver long-term value,” said Norges Global Co-Head Unlisted Real Estate, Per Loken, in prepared remarks.
Given much of the news and analysis about U.S. office properties, that might seem at best risky. However, as extensive GlobeSt.com reporting has shown, office as an investment category can be good for those who dig into data and recognize that selective choice can lead to worthwhile opportunities.
The largest difficulty in understanding the office is looking at average results. The property type is stratified.
In February 2024, Brookfield said that 90% of all office vacancies were in the bottom 30% of buildings, "largely characterized by older offices with limited amenities and reduced functionality." The top 25% of buildings, in comparison, see stable vacancy rates and record-high rents. "We believe this growing divide will only widen as legacy leases expire and tenants look for new space that reflects evolving business culture to engage employees and meet sustainability goals," they wrote.
Cushman & Wakefield wrote last year, "Overlaying current inventory, projected deliveries and a natural rate of vacancy of 13%, the US market is on track to have 1.1B SF of vacant office space by the end of the decade, 55% more than prior to the pandemic (Q4 2019),” and that “upwards of 70% of the nation's office stock was built prior to 1990 and does not match the preferences of today's occupiers.”
Only 15% of inventory in 2030 is expected to be new Class A supply, based on current projections, C&W says; about 60% will require "some form of upgrade or repurposing to overcome competitive obsolescence;" and the remaining 25% will be "increasingly undesirable" and "will need to be reimagined and made relevant for the future."
Office investment can make sense if investors can identify the properties companies will want and get them at a reasonable price.
Source: GlobeSt/ALM