The REIT market trades at a significant discount to private market values and has made many effective arguments in its favor.
Net effective growth in New York has been muted due to new supply and capital expenditure requirements. As growth slows, the multiple paid for any assets also diminishes.
Tenants’ changing preferences are working against the antiquated office spaces that are still prominent in New York. Now, coworking firms and major companies are seeking out open floor models, natural light and elevator banks, but many bricks and beams in New York City weren’t configured that way.
The REIT discount has caused increased efficiency of office space. Now, employees mostly need just a laptop or device and good WiFi in order to be productive. With this, the amount of space needed per employee reduces from 250 square feet per person to just 50.
All of these factors has slowed cash flow for office landlords and are beginning to beat out the premium New York brand name.
Still, the private market has many plausible rebuttals. The first being that REITs represent a portfolio of assets, meaning investors are buying the entire New York market. On the other hand, private investors can buy individual assets.
“REIT investors have the luxury of putting large sums of investment dollars to work in trailer parks as easily as they can the Empire State Building,” according to Alex Snyder, senior analyst with CenterSquare. “Private investors that need to deploy large sums of equity, however, generally do not have the option to allocate quickly across numerous small investments.”