Contributor, Benzinga
December 5, 2023

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Real Estate Investment Trusts (REITs) are companies that invest in all aspects of real estate, and office REITs specialize in office properties. These companies allow investors the chance to own valuable real estate while having the potential for long-term capital appreciation.

The real estate sector is currently witnessing a slowdown as sky-high interest rates amid recession fears have pummeled market demand. Commercial real estate, particularly those that lease office spaces were among the worst hit amid the rising popularity of the remote working culture. 

However, tech companies including Snap Inc, Apple Inc and Twitter are laying the foundation by requiring workers to return to the office once again. This comes as studies show that in-person collaboration boosts productivity and innovation. Though a full-time return to office seems unlikely, industry experts are predicting the future of work to be hybrid. 

What are Office REITs?

Office REITs are investments pertaining to owning, managing, developing, operating, and/or leasing office buildings.

Office REITs invest in office properties, which are then leased as office spaces to companies. Such REITs focus on developing or acquiring large-scale commercial properties and are responsible for managing and leasing them to tenants. 

As of June 2023, office REITs produced a negative return of just over 37%, creating a buying opportunity for investors who wish to access this market.

Office buildings need to be in locations where they can grow and thrive. Busy business districts are home to many suitable office spaces such as:

  • Banks
  • Law firms
  • Investment companies
  • High-end offices
  • Technology research companies
  • Major retail chains

Benefits of Office REITs

Tax Advantages: REITs are taxed on an individual level and are not subject to corporate income taxes. To qualify as a pass-through business exempt from corporate taxes, a REIT has to invest at least 75% of its total capital in real estate and derive at least 75% of its gross earnings from rent or mortgage interest payments. 

However, the dividends paid to shareholders are taxed per their tax brackets. Also, if dividend payments include capital gains or losses from asset sales, they are subject to short or long capital gains tax. REITs are exempt from double taxation. 

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

Volatile Demand: Demand for office spaces has dwindled over the last two years as the COVID-19 pandemic promoted a remote working lifestyle. The advantages of working from home, such as reduced operating costs and potentially improved productivity, have incentivized many companies to permanently adopt a remote working structure. 

While many tech companies have begun backtracking recently because of the benefits of in-person collaboration, it is unlikely that the demand for office spaces will reach pre-pandemic levels anytime soon. 

High Interest Rates: High interest rates mean that debt has become more expensive. As the real estate sector is highly leveraged, a hawkish backdrop indicates higher interest liabilities, translating to lower profits. This trend might lead to lower dividend yields for investors, especially as demand for office spaces remains unstable.  

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)

$121.93
0.86[0.71%]
Last update: 4:20PM (Delayed 15-Minutes)
Get Real Time Here
Open121.090Close121.930
Vol / Avg.803.623K / 1.257MMkt Cap21.331B
Day Range120.720 - 123.20052 Wk Range90.730 - 159.120

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)

$35.86
-0.58[-1.59%]
Last update: 4:00PM (Delayed 15-Minutes)
Get Real Time Here
Open36.450Close35.860
Vol / Avg.617.311K / 1.280MMkt Cap4.207B
Day Range35.840 - 36.47052 Wk Range25.990 - 43.370

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)

$65.03
-0.40[-0.61%]
Last update: 4:39PM (Delayed 15-Minutes)
Get Real Time Here
Open65.390Close65.030
Vol / Avg.824.498K / 1.633MMkt Cap10.206B
Day Range64.940 - 65.79052 Wk Range46.180 - 73.970

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 REITs19
Average Dividend Yield6.97%
YTD Total Return-25.51%
October Total Return-9.80%
2022 Total Return-37.62%
Source: NAREIT

Quarterly Data

Financial MetricQ3 20232023 YTD
FFO ($M)$1,687$5,206
NOI ($M)$2,670$8,110
Dividends Paid ($M)$945$3,556
SS NOI1.58%
Occupancy Rate88.32%
Source: Nareit T-Tracker

All Office REITs

TickerCompany±%PriceInvest

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 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:

  • securely through CrowdStreet's website
    securely through CrowdStreet's website
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  • securely through Yieldstreet's website
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  • securely through Fundrise's website
    securely through Fundrise's website
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    This is a testimonial in partnership with Fundrise. We earn a commission from partner links on Benzinga.com. All opinions are our own.

  • securely through CityVest's website
    securely through CityVest's website
    Best For:
    Accredited Investors
    Rating:
    Read Review

    Must be accredited investing a minimum of $25,000.

  • Best For:
    A Diverse Range of Offerings
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Frequently Asked Questions

Q

Do REITs increase your taxable income?

A

If you take a dividend on a REIT investment, your taxable income will increase. However, you will not be subject to corporate taxes.

Q

What types of REITs are available?

A

Private REITs, office REITs, public non-traded REITs and many more are available to investments.

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