Learn › Sectors & Property Types · 4 min read

Office REITs

How office REITs lease space to corporate tenants and why hybrid work has reshaped demand for downtown and suburban buildings

What office REITs own

Office REITs own buildings leased to businesses, professional firms, and government tenants: central-business-district towers in major cities, suburban office parks, and a specialized subset of lab and life-science buildings leased to biotechnology and pharmaceutical tenants. Portfolio quality and location vary enormously across the sector, from trophy towers in gateway cities such as New York, San Francisco, and Boston to lower-rise suburban campuses in secondary markets. Some office landlords have also leased space to flexible workspace and coworking operators, either as a single large tenant occupying part of a building or, in a few cases, by operating shared workspace directly as an amenity to attract and retain other tenants. Well-known office REITs include Boston Properties (BXP), Vornado Realty Trust, SL Green Realty, and Kilroy Realty, while Alexandria Real Estate Equities specializes in life-science and lab space rather than traditional corporate office.

How they make money

Office leases tend to run long — often five to fifteen years — with tenants paying base rent plus a share of building operating expenses and taxes. A distinctive feature of this sector is the size of the recurring capital commitment landlords make to win and keep tenants: tenant improvement allowances (cash toward building out a suite to a tenant's specifications) and leasing commissions are a significant, ongoing cost of doing business in office, larger relative to rent than in most other REIT sectors. Office leases can also be structured as gross, where rent covers most operating costs, or net, where tenants reimburse a share of costs directly, and buildings increasingly compete on amenities — fitness centers, conference facilities, food service — that require additional capital and ongoing operating expense to maintain a competitive, tenant-ready building.

What drives demand

Office-using employment — professional services, finance, technology, and government — is the fundamental demand driver, along with how much space companies choose to lease per employee. That second factor has shifted substantially since 2020, as hybrid and remote work arrangements have led many companies to reduce their office footprint or consolidate into fewer, higher-quality locations. This has produced what's often called a "flight to quality," where newer, amenity-rich, well-located buildings have generally outperformed older, commodity office space in both occupancy and achieved rent. The pace and degree of return-to-office also varies by industry and by company, with some sectors such as finance and law generally maintaining higher in-office attendance than technology, and demand trends can differ meaningfully between gateway cities and smaller secondary markets.

Key risks

Elevated vacancy in many markets, long releasing timelines when a large tenant doesn't renew, and the high capital cost of re-leasing space are the central risks facing office REITs today. The sector has also become more bifurcated than most: top-tier buildings in strong locations compete for a shrinking pool of large tenants, while older buildings face a harder path to being re-leased at all without substantial renovation or repositioning. Falling property values in weaker submarkets have also made refinancing maturing debt more difficult for some office owners, since lenders generally size new loans against current, not historical, property values. Corporate layoffs and downsizing can also directly reduce a tenant's space needs mid-lease-term or at renewal, adding another layer of uncertainty to forecasting future occupancy.

Metrics that matter

Because office leases run so long, current occupancy alone can be misleading — it doesn't show how much lease expiration is coming in the next few years. Weighted average lease term (WALT) and the backlog of signed-but-not-yet-occupied leases both help fill in that picture, alongside leasing spreads on renewals. Face, or headline, rent can also overstate what a landlord actually collects once free-rent periods and other lease concessions offered to attract tenants are factored in, so effective rent is often a more accurate gauge of true pricing power. Given the sector's capital intensity, balance sheet strength and leverage also matter more here than in sectors with shorter, more predictable capital needs; the glossary explains each of these terms individually.

A note on life science

A handful of office REITs, most notably Alexandria Real Estate Equities, specialize in laboratory and life-science buildings leased to biotechnology and pharmaceutical tenants rather than traditional corporate office users. Demand for this niche follows its own drivers — research funding, drug development activity, and the biotech industry's capital-raising environment — that are distinct from broader corporate office employment trends, so it's worth evaluating separately from a REIT's traditional office holdings even when both sit in the same portfolio. For the rest of the sector series, see the REIT sectors overview; current office REITs are listed on the office sector page.

See it in the data: Office REITs →

Research and education only — nothing here is investment advice. Figures such as the 90% distribution rule are general and can change; always confirm against a company's filings.