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L.A. or NY? Green Street Says West Coast Better for Office Profits
The West Coast edged out the East Coast as the best place to make money on an office investment. Based on commercial real estate cap rates, office buildings in New York were overpriced by 20% on average compared with such markets as Los Angeles’ Westside or San Francisco’s downtown, according to research by Green Street Advisors.
The recently-launched Green Street Atlas grading system allows a systematic way to assess relative growth across markets, submarkets, and zip codes. It also showed, for example, Equity Residential and Essex Property Trust offer the best long-term growth among the top Apartment REITs.
One cause cited for dragging down New York City’s office towers, is new supply. That includes deliveries at Hudson Yards on the far West Side, as well as downtown at the World Trade Center. Another is the space reductions by occupiers such as financial-services companies, law firms and other traditional New York office tenants, which the report notes aren’t using as much space per employee anymore.
The pro-growth policies of public officials such as Mayor Bill de Blasio and former mayor Michael R. Bloomberg, have helped encourage more development in a city known for its historically tough building environment. Last year, east Midtown was rezoned to accommodate larger buildings. That’s adding new supply, but appears to be hurting net operating income as a share of the purchase price.
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