Investors in Chicago Office Favor Mid-Tier Properties
Even as office leasing in Chicago skews toward Class A properties, it’s a different narrative when it comes to investment sales, according to Marcus & Millichap’s 2020 outlook for the market.
“Deal flow for mid-tier properties increased as a percentage of total transactions last year, a trend that should continue in the upcoming months,” according to the report. That being said, “investors are drawn to stabilized Class B properties with tenants secured under multiyear leases rather than value-add acquisitions.”
At the lower end of the spectrum, says Marcus & Millichap, “Class C buyers remain active, particularly in areas where mid-tier properties also transact. Average first-year returns for these deals are above 8%, proving investors with an elevated risk tolerance significant potential upside. Class A properties in major office-using districts transact at an average cap rate in the mid-7% area,” compared to the high-7% range on Class B.
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