The nation’s equity REITs are pivoting their investment strategies to increase their office property holding. Conversely, the REITs are selling more industrial properties to make room the office purchases.

REITs view Commercial Business District (CBD) properties as offering secure, stable cash flows. In addition, many REITs regard suburban office properties as “value add” opportunities. They will tend to hold on and re-tenant these office assets more than other institutional investors.

It’s all part of re-weighting their portfolio. Industrials are in a seller’s market. Offices represent secure cash flows that can be purchased on an all cash basis and leveraged for sale at a later date.

Risk plays a big part in this trend. When compared to the industrial and retail sectors, the office sector has the least risk to dramatically evolve over the next 20 years, Significant change is forecasted in the Industrial sector which is moving to a big-box, modern distribution age. Similarly, the Retail sector is continuing to evolve as competition becomes more intense with e-commerce. These forecasted changes create more uncertainty in long term investments.

In terms of office space, medical and tech space are in particularly high demand.

In 2012, REITs acquired twice as much property as they sold. This year the gap has been cut in half as this re-weighting process takes hold.

Excerpts taken from CoSrtar Advisor Newsletter, “REITs Turning to Office Properties for Future Growth” by Mark Heschmeyer, October 9, 2013.