Office REITs own and manage office real estate and rent space in those properties to a variety of tenants. Properties can range from skyscrapers to office parks to individual buildings, and they tend to be located in central business districts or suburban areas. Offices play key roles in the fabric of our communities. They form the basis of local employment centers and help support small businesses. They also typically provide significant funding for public services and infrastructure through property tax revenues.

The August 2023 Survey of Business Uncertainty, jointly run by the Federal Reserve Bank of Atlanta, Chicago Booth, and Stanford University, sampled senior executives regarding the past, current, and future states of remote work in the U.S. It found that remote work is anticipated to modestly increase by 2028 with 72.6%, 16.3%, and 11.2% of full-time employees expected to be in fully in-person, hybrid, and fully-remote roles, respectively. These results reinforce the importance of the office for collaboration, innovation, knowledge transfer, and mentorship.

While working from home was initially thought to be a productivity boon, further research suggests that may not have been the case. Data from the Survey of Working Arrangements and Attitudes from January to June 2023 show that 43% of workers believed that they were more productive working from home, 43% indicated that their productivity was the same as their in-office performance, and 14% said that they were less productive. Controlling for the time savings of commuting virtually eliminated the perceived productivity benefit of working from home.

Despite concerns regarding the impact of work-from-home, data from Nareit’s T-Tracker® show that office REITs maintained a degree of operational buoyancy in the third quarter of 2023, with the sector posting an average four-quarter same-store net operating income growth rate of 1.6%. Office REITs have also exercised discipline in their balance sheet construction activities. Fixed-rate debt accounted for 89.1% of total debt; the weighted average term to maturity and interest rate on total debt were 6.8 years and 4.1%, respectively.

Federal Open Market Committee (FOMC) tightening cycles typically mark inflection points in the U.S. economy and financial markets. Public equity REITs have historically enjoyed a resurgence in total return performance after monetary policy tightening cycles end. With the end of the current set of rate hikes, REIT total returns have bounced back. From the FOMC’s November 2023 announcement to the end of the year, the FTSE Nareit All Equity Index posted a total return of 21.0%; office total returns were materially higher at 36.7%.

  • 2nd: Publicly-listed equity office REITs ranked second in total return performance among the 13 REIT sectors in the FTSE Nareit All Equity Index, from the FOMC’s November 2023 announcement to the end of the year, posting a return of 36.7%.
  • 9: Highlighting their sustainability and stewardship commitments, nine office REITs received the highest (5-star) rating from GRESB, a global ESG benchmark for real assets, in 2023.
  • 65: Economists from Chicago Booth, Stanford University, and ITAM estimated that, on average, American workers saved 65 minutes each day on commuting and grooming activities when they worked from home; and 30% to 40% of these savings were allocated to their jobs.

Sector Spotlight

FTSE NAREIT Equity Office

-Constituents: 19
-One-Year Return: 2.03%
-Three-Year Return: -8.09%
-Five-Year Return: -3.60%
-Dividend Yield: 5.07%
-Market Cap: $64.14 billion
-Dividends Paid (2023Q3): $945.0 million
-NOI (2023Q3): $2.67 billion

Source: FTSE, Nareit T-Tracker® | As of December 31, 2023

Below is a list of Nareit member companies from the office sector.