Real Estate Investment Trusts (REITs) offer investors an opportunity to participate in the commercial real estate market without having to buy physical properties. Office REITs typically focus on owning and managing office buildings in prime locations, catering to a diverse range of tenants from small businesses to large corporations.
Investing in office REITs can be a smart move for those looking to diversify their investment portfolio with real estate assets. These REITs offer steady rental income streams, often with long-term lease agreements in place, providing investors with a reliable source of dividends. Additionally, investors looking for stability, income, and growth potential in the commercial real estate sector may find that investing in office REITs is a prudent choice.
What is an Office REIT?
Office Real Estate Investment Trusts (REITs) are companies that own, operate, or finance office buildings and other commercial properties. These REITs generate income primarily through rental payments from tenants who lease office space within their properties. Investing in office REITs can provide individuals with an opportunity to gain exposure to the commercial real estate market without having to directly own or manage office buildings themselves.
Benefits of Office REITs
- Steady Income Generation: Office REITs generate steady income from leasing office space to tenants. This consistent rental income can provide investors with a reliable source of cash flow, making office REITs a dependable option for those seeking passive income.
- Capital Appreciation: As the value of the underlying office properties appreciates over time, investors may see an increase in the value of their investment. This growth potential combined with the regular income stream can result in attractive total returns for investors.
- Diversification: Office REITs offer diversification benefits as they provide exposure to the commercial real estate market, which may perform differently than other asset classes such as stocks or bonds. This diversification can help mitigate risk and enhance the overall stability of an investment portfolio.
- High Dividend Payouts: To qualify as a REIT, the company must distribute at least 90% of its total taxable earnings to shareholders. REITs can be ideal for investors looking to build a portfolio to generate passive income. As office rental payments are significantly higher than rents on residential properties, well-established office REITs typically have high dividend yields.
- Long-Term Contracts: Unlike residential rentals, office space is leased for a long period, typically for more than five years. Also, office REITs usually enter into triple-net-lease agreements wherein the tenants are responsible for paying real estate, taxes, property insurance and maintenance charges, and the gross rent. Thus, shareholders of office REITs can enjoy relatively high dividend payouts for an extended period.
Risks of Office REITs
- Impact of Economic Downturns: During periods of economic uncertainty, businesses may downsize or close offices, leading to higher vacancies in office properties and lower rental rates. This can have a negative impact on the financial performance of office REITs, as their income streams are directly tied to the occupancy levels and rental prices of their properties.
- Oversupply: If there is an abundance of new office buildings being constructed in a particular market, it can lead to increased competition for tenants and put pressure on rental rates. This oversupply scenario can result in decreased revenues for office REITs and may negatively impact their valuation and distribution yields.
- Volatile Demand: Changes in technology and working trends, such as the rise of remote work and flexible office spaces, could also pose risks to office REITs by altering the demand for traditional office spaces.
How To Invest In Office REITs
Most office REITs are publicly traded and are listed across stock exchanges in the U.S. They are traded like stocks and can be bought and sold through a stock broker or brokerage platform. You can trade units of office REITs during regular stock market trading hours.
Benzinga has compiled a list of the best online stock brokers to help you choose the right option.
Largest Office REITs
These are the 3 largest publicly traded office REITs on the market based on market cap.
Alexandria Real Estate Equities (ARE)
| Ticker | Company | ±% | Price | Invest | ||
|---|---|---|---|---|---|---|
| ARE | Alexandria Real Estate | 0% | $104.31 | Buy stock | ||
Alexandria Real Estate Equities Inc. (NYSE: ARE) is the publicly traded largest office REIT. With more than 1,000 tenants, ARE is an investment-grade REIT and is a constituent of the S&P 500 index.
Alexandria Real Estate’s tenants include Uber Technologies Inc. (NYSE: UBER), Meta Platforms Inc. (NASDAQ: META), Bristol-Myers Squibb Co. (NYSE: BMY), Moderna Inc. (NASDAQ: MRNA) and Takeda Pharmaceutical Co. (NYSE: TAK).
Kilroy Realty Corp. (KRC)
| Ticker | Company | ±% | Price | Invest | ||
|---|---|---|---|---|---|---|
| KRC | Kilroy Realty | 0% | $38.73 | Buy stock | ||
Kilroy Realty Corp (NYSE: KRC) owns 55 properties spanning over 14 million square feet across the San Francisco Bay Area, Greater Los Angeles, Pacific North West, Austin area and San Diego area. It is one of the first American REITs to achieve carbon neutrality as it successfully delivered carbon-neutral operations in 2020 and 2021.
Boston Properties Inc. (BXP)
Boston Properties Inc (NYSE: BXP) is the largest publicly traded REIT in terms of leasable land (53.5 million square feet), with 193 properties in its portfolio spread across six key markets in the U.S. These holdings include 12 properties that are currently under development.
Boston Properties won Nareit’s 2022 Leader in the Light Award in the office property sector, which is one of the highest achievements for office REITs.
Industry Overview
| Number of REITs | 19 |
| Dividend Yield | 5.29% |
| YTD Total Return | -5.35% |
| January Total Return | -5.35% |
| 2023 Total Return | 2.03% |
Quarterly Data
| Financial Metric | Q4 2023 | 2023 |
|---|---|---|
| FFO ($M) | $1,615 | $6,816 |
| NOI ($M) | $2,672 | $10,774 |
| Dividends Paid ($M) | $1,070 | $4,622 |
| SS NOI | (0.3%) | |
| Occupancy Rate | 88.32% |
All Office REITs
| Ticker | Company | ±% | Price | Invest | ||
|---|---|---|---|---|---|---|
| DEA | Easterly Government Props | 0% | $12.18 | Buy stock | ||
| FSP | Franklin Street Props | 0% | $1.78 | Buy stock | ||
| CMCT | Creative Media | -3.21% | $0.22 | Buy stock | ||
| CUZ | Cousins Props | 0% | $31.10 | Buy stock | ||
| HPP | Hudson Pacific Properties | 0% | $3.23 | Buy stock | ||
| OPI | Office Props IT | -3.57% | $1.08 | Buy stock | ||
| BDN | Brandywine Realty Tr | 1.86% | $5.49 | Buy stock | ||
| – % | $ – | Buy stock | ||||
| PGRE | Paramount Group | 0% | $4.71 | Buy stock | ||
| SLG | SL Green Realty | 0% | $77.73 | Buy stock | ||
| ESRT | Empire State Realty Trust | 0% | $10.78 | Buy stock | ||
| ARE | Alexandria Real Estate | 0% | $104.31 | Buy stock | ||
| EQC | Equity | 0% | $20.12 | Buy stock | ||
| HIW | Highwoods Props | 0% | $31.61 | Buy stock | ||
| PDM | Piedmont Office Realty | 0.11% | $9.41 | Buy stock | ||
| NYC | American Strategic | 0.34% | $8.76 | Buy stock | ||
| BXP | BXP | -0.64% | $79.05 | Buy stock | ||
| KRC | Kilroy Realty | 0% | $38.73 | Buy stock | ||
REIT Alternatives
REITs provide a low-cost and simple way to invest in real estate. However, they aren't the only option available to generate passive income through real estate with a low minimum investment. Real estate crowdfunding offers investors the ability to decide which properties they want to invest in while still enjoying passive income at a fraction of the cost of traditional methods of investing in real estate. Here are some of our favorite real estate crowdfunding platforms:
- Best For:Accredited InvestorsVIEW PROS & CONS:securely through CrowdStreet's website
- Best For:Diverse Range of Alternative InvestmentsVIEW PROS & CONS:securely through Yieldstreet's website
- Best For:Beginner Real Estate InvestorsVIEW PROS & CONS:securely through Fundrise's website
Frequently Asked Questions
What are the biggest office REITs?
Which REIT has the most office exposure?
How do office REITs make money?
One of the primary ways office REITs generate income is through rental income. Tenants that lease office space within the REIT-owned properties pay monthly rent, providing a consistent stream of revenue for the REIT. Additionally, office REITs can increase their income through property appreciation. As the value of the office properties within the REIT‘s portfolio appreciates over time, the REIT can sell these properties at a profit, realizing capital gains.