AFIRE International Real Estate Investor Survey: US Office Use Set for Transformation

AFIRE CEO Gunnar Branson

Washington, DC– AFIRE, the association for international real estate investors focused on commercial property in the United States, this month released its latest International Investor Survey Report, underwritten by Holland Partner Group.

The survey, conducted in late summer 2023, captures the view of global institutional investors on a range of topics, including a large majority forecasting a decline in office values; a large uptick in office conversions over the next five years (to residential and other purposes); and the notable impact of rising or limited insurance premia affecting investment decisions into certain US regions.

“This AFIRE Survey Pulse captures institutional investor sentiment from around the world toward the US market in late 2023,” said Gunnar Branson, CEO of AFIRE. “While significant uncertainties persist, institutional investors, who benefit from a long-term horizon, see opportunity to realign their portfolios to meet the shift in asset class demands, in particular towards the continued need for a greater volume of residential properties in US cities.”

As investors continue to assess optimizing office assets, nine in 10 forecast converting existing office properties to residential in the next five years. In addition, survey respondents believe that more than a third of office assets within their US portfolios will require upgrading to meet future occupancy demands for enhanced health, sustainability, and work style amenities. Investors are also increasingly considering a variety of office transitions to other uses, including industrial storage/data center (72%), hospitality/leisure (69%), and vertical farming (33%).

Trophy/ Class A+ office assets in gateway markets offer the greatest market stability amid a broad sector decline in which 30% of investors forecast a drop of more than 10% in office valuations. Washington, D.C., and the New York Metropolitan Area lead anticipated declines among gateway markets, followed by Atlanta, Boston, and Miami.

In a welcome outlook, 69% of respondents believe the recent downgrading of the US long term credit rating will not impact institutional foreign investment in the US real estate market. However, fully 82% of respondents agree that rising insurance premiums and/or declining insurance availability may prevent them from investing in certain regions, in part, a reflection of the impact of climate change on vulnerable markets.

For the first time in such an AFIRE investor survey report, respondents were asked how they are formally addressing Governance and Diversity, Equity, and Inclusion (DEI) matters within their investment approach. Nearly half (43%) of US-based investors are Principles for Responsible Investing (PRI) signatories, rising to 53% among non-US investors, while a combined 27% adhere to Global Reporting Initiative (GRI) governance standards. Fully 80% of all respondents believe their company has the skills set to increase diversity and that acting on DEI requirements will deliver significant ROI.

The AFIRE International Investor Survey Q3 2023 Pulse Report was conducted in late summer 2023, and was administered by the research team at PwC LLP, collecting responses from within the AFIRE membership and community, including institutional investors, fund and investment managers, family offices, publicly listed companies, and related services.

“The Holland Partner Group is proud to provide sponsor support for the AFIRE Survey Pulse, which offers the global real estate community essential insight into the US market, and the challenges and opportunities this presents,” said Clyde Holland, Executive Chairman of Holland Partner Group.