Demand for office space flares

Office buildings in downtown Los Angeles

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MARK AUSTIN THOMAS: Shareholders in the nation's biggest owner of office buildings are set to vote today on a $38 billion buyout offer from The Blackstone Group. But wait a minute, there's a competing offer of $41 billion from Vornado Realty Trust. That offer involves less cash up front and the rest in stock. Marketplace's Bob Moon explains why either way, this is quite literally a big deal.


BOB MOON: Month after month, the real estate market has been plunging — but that only applies to housing.

The demand for office space is on the rise and leasing rates are at record highs, which explains the bidding war over Equity Office's coast-to-coast empire.

At the commercial real-estate advisory firm Grubb & Ellis, Robert Bach expects Equity Office won't be the only company attracting money from big investors with the focus shifting from residential to business real estate.

ROBERT BACH: There's more capital out there than available properties to invest that capital in, and there's really no sign that that's turning around, because interest rates are low and rental rates are rising, so office properties represent a very attractive investment.

With so much money floating around, Bach says the vast size of Equity Office — with some 580 properties around the country — makes it an especially attractive buy.

BACH: The fact that there's so much property out there gives some big investors the chance to get a lot of money invested at one time.

Analysts and underwriters of recent commercial-building purchases are generally projecting another five years of increasing office rents.

In Los Angeles, I'm Bob Moon for Marketplace.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.

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