U.S. commercial real estate investment sales picked up markedly in 2025, responding to improved borrowing conditions and greater conviction in property fundamentals.
Office was the surprise standout, showing the largest year-over-year increase in sales volume of the major property types, according to CoStar data.
Among those contributing to the uptick in deal flow was James Nelson, principal and head of U.S. investment sales at Avison Young. Nelson recently spoke with Phil Mobley, CoStar’s national director of office analytics, to explore the drivers and nuances behind investors’ revived appetite for office buildings. The interview printed here has been edited for clarity and length:
Both CoStar and Avison Young have reported that office investment sales volume increased more than 20% year over year in 2025. Was there anything about that rebound that is, perhaps, underappreciated?
While volume increasing is obviously a welcome sign, the real story emerges when you begin to segment the data and examine what is actually trading. For example, many office trades in 2023-2024 were for repurposing buildings for new uses, whereas in 2025, we began to see more investors buying office to keep as office, pursuing value-add or even core strategies. These deals were notably absent over the last few years.
Can you go a little deeper into conversion-related sales? How much have they contributed to volume?
They have been significant over the last few years. In New York City, office conversions accounted for as much as 25% of the sales, but that percentage has begun to drop as the office leasing market improves and there are fewer predominantly vacant buildings to convert. As for the percentage of office stock being converted to residential, Northern Virginia leads the way at about 9%, followed by Washington, D.C., at around 5%. Manhattan and Dallas are both 3-4%.
The return of institutional investors to the office sector was one of the big stories of 2025. What brought them back? Do you expect an even stronger return this year?
Two things contributed to this. First, it became clearer over time which assets were functionally relevant as office buildings versus those that have a higher and better use. Secondly, the return of institutional capital to office is emblematic of their belief that valuations have bottomed and now present attractive basis opportunities.
These things, coupled with lender-motivated sales, contributed to higher volume even in some markets where vacancy is still rising.
Are there any types of office buildings for which the bid-ask spread is still too wide? Or for which there are still no bids?
We would like to see more investment in core office. There is substantial investor appetite for value-add, especially with B buildings being upgraded to A, but there is still not a depth of bidders for the takeout once stabilized.
Increased foreign investment could help in this regard. Along those lines, it was very encouraging to see the Norges Bank investment in 1177 Avenue of the Americas in the fall.
What do you think the main upside and downside risks are to the prospect of 2026 being a year of even greater liquidity for commercial office?
The upside would be continued improvement in leasing fundamentals. The downside is that it doesn't happen, and concessions stay high, making it harder to underwrite office deals.