Office REITs: Improving Occupancy for Newer Assets Bodes Well for Sector

Office REITs own and manage office real estate and rent space in those properties to a variety of tenants. While office properties can range from skyscrapers to office parks to individual buildings, REITs generally own higher quality offices located in central business districts.

Offices play key roles in the fabric of our communities, forming the basis of local employment centers and helping support small businesses. They also typically provide significant funding for public services and infrastructure through property tax revenues.

Work-from-home trends have adversely affected office valuations and operating performance. January 2026 results from the Survey of Working Arrangements and Attitudes (SWAA), a monthly online survey jointly run by the University of Chicago, ITAM, MIT, and Stanford University, indicated that, by 2025, 61% of full-time employees were completely working onsite, 27% had hybrid working arrangements, and 12% were working entirely remote.

Prior to the pandemic in the fourth quarter of 2019, occupancy rates averaged 91.0% for office properties from open end diversified core equity (ODCE) funds from the National Council of Real Estate Investment Fiduciaries (NCREIF). In the third quarter of 2025, the average office occupancy rate was 80.8%. Data from Nareit’s quarterly REIT Industry Tracker offered a more positive picture. REIT office occupancy averaged 93.4% in the fourth quarter of 2019 and 85.3% in the third quarter of 2025.

Speaking to Nareit, Ronald Kamdem, head of U.S. REITs and commercial real estate research at Morgan Stanley, pointed out that some “encouraging trends” have emerged in terms of occupancy. “I think you've seen that you've gotten back to that critical mass of occupancy, where if you wake up one day, you know that if you're not in the office, you could be missing out on those interactions that other people aren't.”

Performances across different quality segments of the office sector have varied markedly. In general, newer, high-amenity, well-located properties have been leasing quickly, maintaining occupancy, and enjoying better performance than their peers. Higher quality office properties are typically found in REIT portfolios. In its latest sector update, Green Street indicated that high-quality office values have slightly increased due to modestly improving capital market conditions. Kamdem, meanwhile, noted that there has been a “tremendous amount” of demand for well-amenitized, well-located office assets, in part due to the very low level of new supply.

The FTSE Nareit All Equity Index posted a total return of 2.3% in 2025. Publicly-listed equity office REITs ranked 12^th in total return performance among the 13 REIT sectors, realizing a total return of -14.0%. Yet, dedicated active REIT investment managers have been increasing their allocations to office. Data from Nareit’s Active REIT Manager Tracker indicated that, as of the third quarter of 2025, active REIT managers increased their office allocations by 2.1% on a year-over-year basis.   

• 3.0%: The office equity market capitalization share of the FTSE Nareit All Equity REIT index as of year-end 2025 was 3.0%; it was the 10^th largest of the 13 REIT sectors.
• 30%: After running more than 1,300 office buildings in 170 cities through its conversion algorithm, Gensler determined that approximately 30% of these properties were suitable for conversion to other uses, including residential.
• 100%: Green building certifications are useful tools that demonstrate commitments to operating sustainably. Supporting data for Nareit’s 2025 REIT Industry Sustainability Report showed that 100% of office REITs owned green certified buildings.