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Investors pay big premiums for office buildings with tenants

December 1, 2010 |  7:10 pm

Many investors are eager to buy office buildings again –- as long as they don’t have to run the risk of trying to find tenants to rent space in them.

Well-occupied buildlings in stable, high-status markets such as Washington, San Francisco and Los Angeles’ Westside have commanded investor interest for months, but the price difference between the “have” and “have not” buildings is growing increasingly stark, according to real estate data provider CoStar Group.San Francisco

Prices for the the most desirable buildings in the country’s top markets increased nearly 44% in the second quarter from the previous quarter this year and CoStar thinks the trend extended through the third quarter.

"Assets with quality cash flows in primary markets such as New York, D.C., Boston, and San Francisco have fetched some eyepopping prices this year,” CoStar said in a story posted Wednesday.

Investors want to avoid the risky challenge of trying to find tenants. Many companies cut staff or closed their doors during the recession, and the office market has yet to catch up with all the downsizing.

Upscale office buildings that were virtually full sold for an average of $327 a square foot between Oct. 1, 2009, and Sept. 30, 2010, CoStar said. Similar buildings that were virtually empty sold for about a third of that price  -- $118 a foot.

-- Roger Vincent

Photo:  The San Francisco skyline.  Credit: Bloomberg News