Investment Outlook for Government-Leased Office Buildings, by GSAXchange
The U.S. General Services Administration’s plan to reduce the amount of office space it leases for federal government agencies is having an impact on investors’ acquisition strategies, notes GSAXchange, the investment sales arm of Colliers Government Solutions, in its spring 2014 “Government¬-Leased Assets” report. “Driven by the lack of product with long lease terms, investors have been forced to adjust their acquisition criteria by shortening minimum lease term requirements.”
Last year produced two noticeable trends for GSA-leased assets. First, per-square-foot prices for GSA-leased office buildings fell more in line with prices for office building sales overall. Second, the average cap rate for GSA-leased asset sales moved higher to match the increase in deals with shorter lease terms. “Although interest rates continue to hold firm or even decline as Treasury yields stabilize and spreads tighten, this trend will likely continue into 2014, as the supply of available GSA-leased assets for sale with longer (10 or more years) firm lease terms remains tight and investors adjust their risk tolerances and pursue assets with shorter firm lease terms at higher cap rates,” the report concludes.
GSAXchange also notes that smaller GSA-leased assets offer some advantages for investors. These assets “often experience an easier path to lease renewal” and can be located in secondary markets where consolidation usually is not an option. “This trend should provide current owners with the opportunity in coming months to take advantage of increased buyer demand and realize meaningful value gains.”
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