Hines Research: Opportunity For Debt Investment In U.S. Office Sector

(HOUSTON) – Hines, the global real estate investment manager, today released a new research paper, “Seizing the ‘Debt-First’ Office Moment: Timing Extended, Opportunities Unlocked.” This study, highly relevant in today’s uncertain landscape, is an update to the 2024 whitepaper titled “Diving ‘Debt-First’ Into U.S. Office.” In that paper, Hines highlighted an emerging opportunity for investors to strategically enter the U.S. office market through private credit, targeting assets best positioned to succeed in the modern environment. The 2024 paper stated that this avenue offered attractive risk-adjusted returns and also that private lending to the office market could stand on its own as a total return investment, with healthy cash distributions given the interest rate environment. As we progress into 2025, Hines Research believes that market conditions continue to support opportunities for debt investment in the U.S. office sector.

“As we see ongoing market volatility this year, we believe that investors could seize on this tactical opportunity to invest in select U.S. office assets through private credit,” said Joshua Scoville, head of global research at Hines. “As the U.S. office market slowly marches toward recovery, we would argue that the risk-adjusted opportunity for debt investors has only become more attractive, especially in a higher for longer interest rate environment”

Hines Research sees this opportunity happening for three key reasons:

1. 1.) “Higher for Longer” Interest Rates: There had been expectations of long-term interest rates coming down over the course of 2025, but with stickier-than-expected inflation and a murky outlook on U.S. economic policy, many believe that long-term interest rates will remain elevated throughout most of 2025 even if the U.S. suffers a mild recession induced by the uncertainty created by a global trade war. While debt investing arguably can offer attractive risk-adjusted returns relative to other investments throughout the cycle, all things equal, “higher for longer” generally equates to “higher returns for longer” for debt investors who base their mortgage yields on either short or long-term interest rates. We believe the window for earning peak debt investment returns this cycle has only been extended.

1. 2.) Positive Momentum in the U.S. Office Sector: Bright spots continue to emerge in the U.S. office sector, including healthier fundamentals, stable (if not improving) pricing, and broadening tenant demand growth into the broader “Class A” segment of the market. On the margin, improving fundamentals typically reduce the risk of future delinquency, and stable pricing lends even more support for a safe equity cushion for the debt holder.

1. 3.) The Opportunity Set Is Expanding: The U.S. office sector still faces a wall of maturities and a situation where an increasing number of properties are considered distressed. This is forcing owners to make decisions to either sell or accept terms on new debt capital. Those sales necessitate transaction financing, and deciding to hold will likely result in an uptick in refinancings. All this creates potential opportunities for alternative lenders as there are continuing signs that traditional sources of capital remain reluctant to significantly increase their exposure to the U.S. office sector.

“For the first time in a long time, we are seeing some momentum in the the U.S. office sector, which is good news for debt investors as they can find some sense of shelter in the capital stack with these assets” said David Steinbach, global chief investment officer of Hines. “Market volatility and economic policy changes are telling us that we’re likely going to be in a higher-for-longer environment for the time being. For global real estate investors, that means looking at asset classes, like office, in a new way to drive returns.”

Hines’ “Seizing the ‘Debt-First’ Office Moment: Timing Extended, Opportunities Unlocked” research paper is available for download on the Hines website.

About Hines

Hines is a leading global real estate investment manager. We own and operate $90.1 billion¹ of assets across property types and on behalf of a diverse group of institutional and private wealth clients. Every day, our 5,000 employees in 30 countries draw on our 68-year history to build the world forward by investing in, developing, and managing some of the world’s best real estate. To learn more, visit www.hines.com and follow @Hines on social media.

¹Includes both the global Hines organization and RIA AUM as of December 31, 2024.