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Goldman Sachs Predicts Office Market Bottom

Goldman Sachs analyst Caitlin Burrows reports that while the office market may have hit bottom, a return to normalcy will be slow and challenging.

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Good morning. Goldman Sachs says the office market may have hit bottom. Plus, BlackRock has acquired Preqin in a $3.2B deal, highlighting the growing importance of data intelligence.

Today's issue is sponsored by PropertyShark—streamline your research and prospecting with advanced foreclosure intelligence.

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Market Snapshot

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*Data as of 7/01/2024 market close.


Goldman Sachs Predicts Office Market Bottom, But Recovery Will Be Slow

Goldman Sachs analyst Caitlin Burrows reports that while the office market may have hit bottom, a return to normalcy will be slow and challenging.

State of the market: Transaction volumes in commercial real estate (CRE) have plunged by over 50% year-over-year. During the pandemic, CRE saw a 30-40% surge in prices due to zero-interest rate policies. Now, the market is recalibrating. After the Global Financial Crisis, recovery took eight quarters.

Signs of recovery: Leading indicators suggest the worst is over. The OECD's U.S. Composite Business Confidence Index, which predicts U.S. office leasing volumes, improved by 5%. Office leasing volumes have stabilized, with new leasing activity up 10% from last quarter.

Zoom in: However, the performance is split. Class-A and trophy properties are faring better, with vacancy rates at 8% and rents up 2-3%. B- and C-class properties face 25% vacancies and 10-15% rent declines. This bifurcation means high-end segments will recover faster.

  • Manhattan: Strong leasing activity is noted, with a 12% increase in new leases signed in Q2 2024 compared to Q1 2024. This should positively impact valuations and transactions.

  • San Francisco: Office tour activity increased by 73% month over month and 30% year over year, indicating growing interest. However, the city still struggles with a 23% overall office vacancy rate.


Looking ahead: High interest rates, currently at 5.25%, and structural changes in the office market, such as the shift to hybrid work models, continue to exert downward pressure. Burrows cautions that these factors will likely prolong the time for the market to turn positive. The bifurcation in property performance will also persist, with Class-A properties recovering faster than their lower-class counterparts.


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✍️ Editor’s Picks

  • Deal of the day: BlackRock (BX) acquired Preqin in a $3.22B deal, highlighting the growing importance of dependable data in alternative investments and decision-making.

  • Legal landscape: The Supreme Court overturned Chevron v. Natural Resources Defense Council, limiting federal agency power in a 6-3 decision, impacting broad regulations.

  • Medical marvel: Welltower (WELL) acquired a 103,652 SF Sacramento medical office building for $45.6M; it was previously sold for $21.3M.

  • Modification surge: Loans received $22B in modifications by May 2024, with $9B in 2024 alone, and are currently on track for a record year.

  • Dividends ahead: Income investors can expect better prospects in the second half of 2024, with up to 11 plays offering generous dividends.

  • Prices plunge: Lumber prices plummet as building season begins, with two-by-fours down 27% to $452.50 per thousand board feet.

  • Inflation hopes: The Core PCE index rose by 2.6% from a year ago, its slowest increase in 6 months, hinting at a possible rate cut this year as many anticipate.


  • Silicon skyscraper: Sand Hill Property plans a 100-unit, 81-foot tall, 139.8 KSF complex with 15 affordable units near Google’s HQ in Palo Alto.

  • Class A premiums: In some markets, Class A apartments have lower-than-average rent premiums, varying from under 13% to less than 20%.

  • Luxury rundown: Luxury rentals dominate NYC financing, with top loans in May hitting $450M for Long Island City and $360M for Midtown.

🏭 Industrial

  • Mining marvels: Komatsu (KMTUY) plans to build a 225 KSF sales and service center for mining equipment in Mesa, CA, expected by Spring 2026.

  • Industrial inertia: US industrial construction costs rose 2.6% YoY in March, slowing down from previous years. But inflation, rising land prices, and a tight labor market could push prices up again.

  • Data center delight: Aligned Data Centers will construct a $212M, 425KSF facility in Plano, TX, becoming the company's largest data center in North Texas.

  • Tri-state logistics: JW Fulfillment Inc. leased a 342,371 SF space at Arsenal Trade Center, part of a 1 MSF logistics center in Sayreville, NJ.


  • Star-studded supper: A 10 KSF celebrity-loved supper club is opening in Chelsea, joining other top NYC leasing deals in exclusive buildings.

  • Retail roundup: A recent retail trends report highlights growth in coffee, automotive, and discount sectors, with an average vehicle age of 12.5 years.

  • Acquisition frenzy: Foxtrot’s closure sparks intense demand for retail space with quick turnover and fierce competition, resulting in a supply shortage.

  • Refinance success: Haagen Co. secured a $29.2M loan to refinance Goodyear Centerpointe, a 320 KSF retail center in Arizona.


  • Nearby relocation: Associa, a major HOA management company, will spend $15M to relocate its HQ from North Dallas to Richardson, TX.

  • Manhattan momentum: Manhattan office space leases in 2024 show some real momentum, with 11.5MSF leased (11% more than 2023) so far.

  • Legal limbo: A bankruptcy judge allowed lender CIM to foreclose on 88 University Place in Manhattan, amid chaos involving WeWork and Arch Companies.


  • Business hotel bust: The Hilton Oakland Airport Hotel closed Aug. 28 due to crime in the Oakland area. It had 363 rooms and a starting price of $170 per night.


Redemptions from real estate funds are projected to reach $16.5B this year, an eye-popping sum compared to the $1.5B investors redeemed in 2021. This surge in redemptions follows Starwood's move to limit monthly withdrawals to 0.33% of net asset value, sparking fears of a prolonged cash crunch and market turmoil.

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