At the same time, interest rates for loans to buy buildings have more than doubled as the Federal Reserve fights inflation.No surprise that office building values are heading down, bringing declining sales with them.
About $500 million in D-FW offices changed hands through the end of August. That compares with almost $4.7 billion in North Texas office buys last year.“Deal volume in Dallas is down for the office sector, as are prices,” said Jim Costello, chief economist with financial services firm MSCI. “What it will take for deal volume to return is for current owners to accept that potential buyers out there have a dim view of the risks of owning offices.
“In order to achieve the sale of an asset, they will need to take further price cuts from where they have been in order to bring deal volume back to average levels.” MSCI estimates that the average offer on Dallas-area offices is almost 8% below average sales prices. That’s the widest spread since just following the Great Recession.“Prices have got to come down, and you have this stalemate,” said Susan Gwin Burks, senior vice president with Avison Young. “It wasn’t that long ago that buyers were borrowing in the sub 4% and low 4% range.Many potential sellers are holding back to see where prices and interest rates go, she said.
“It’s not going to change until the debt markets change,” Burks said. “We need some confidence in the market. We need the Fed to stop raising interest rates.”