Home > Research > Thought Leadership > 4Q 2018 Gateway Office Capital Markets Report

February 2019
Office market fundamentals remain strong as capital continues to seek high-quality opportunities in the gateway cities.

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Key Takeaways

Macro Capital Trends
  • Gateway office markets are liquid with strong demand for top quality product as well as for product in emerging submarkets that offer greater growth potential.
  • Gateway markets continue to attract the vast majority of international capital, with pension funds and asset managers from Canada and Germany contributing the most capital.
Investment Fundamentals
  • Cap rates, while facing upward pressure in the beginning of 2018 from the threat of rising interest rates, have remained within a tight range across gateway markets.
  • Capital on the sidelines remains plentiful, as closed-end funds with a U.S. focus have an estimated $186 billion in dry powder, a record high this cycle.
Debt Market
  • Traditional equity players have found the risk/return profile of the debt space even more palatable as the cycle continues and have increasingly pivoted toward debt capital.
Gateway Market Analysis
  • In the largest gateways, pricing in top submarkets remains close to peak, bolstered by an expanding roster of tech and coworking tenants, while less desirable submarkets have seen moderation or decline.