Office REITs May Be The Best Value In The Market

Key Takeaways

• Office REITs down 40‑60% since 2020 pandemic.
• Software engineer job postings rising despite bearish tech sentiment.
• San Francisco office demand surges, driven by AI sector growth.
• HIW trades cheapest at 6.6x 2026 FFO, 8.6% yield.
• Analyst predicts office REITs could double value in five years.

Summary

Bloomberg’s Thomas Kennedy says the office market bottom is in, citing rising software engineer postings and booming San Francisco office space. Office REITs have fallen 40‑60% since 2020, creating deep valuation gaps across BXP, KRC, CUZ and HIW. Current pricing shows 6.6‑9x 2026 FFO multiples with yields from 5.3% to 8.6%, the cheapest being HIW. The author expects fundamentals to improve and the sector to potentially double in value over the next five years.

Pulse Analysis

The office‑real‑estate landscape is at a turning point. After a pandemic‑induced exodus to remote work, vacancy rates and rent concessions pushed office REITs into steep discount territory. Yet recent data shows a resurgence: software‑engineer job listings are climbing, and San Francisco, the AI hub, is experiencing a lease‑rate revival. These indicators suggest that demand for premium office locations is re‑emerging, supported by a labor market that values in‑person collaboration for high‑skill tech roles.

Valuation metrics now favor investors. BXP trades at roughly 8x 2026 FFO with a 7% distribution yield, while Kilroy (KRC) and Cousins (CUZ) sit near 9x with similar yields. Highwood (HIW) stands out at 6.6x and an 8.6% yield, the most attractive on a price‑to‑FFO basis. Geographic exposure varies: BXP leans East Coast, KRC dominates West‑Coast tech corridors, CUZ targets Sun‑belt growth cities, and HIW focuses on second‑tier markets benefiting from tax‑friendly migration. The spread in yields and multiples creates a tiered risk‑return spectrum for capital allocation.

For investors, the convergence of improving fundamentals and deep discounts creates a compelling risk‑adjusted case. AI adoption, while still in a pilot phase, is expected to boost productivity and potentially increase office demand for collaborative spaces. If the sector can double its valuation over five years as projected, the upside could far outpace the modest yield premium. However, lingering remote‑work preferences and macro‑economic headwinds remain risks. Savvy allocation to the cheapest, highest‑yielding REITs—particularly HIW—offers a foothold in a market poised for recovery, while diversified exposure across BXP, KRC, and CUZ balances geographic and tenant‑mix considerations.