There are signs that an increasing number of daring investors are beginning to take advantage of low prices and acquire properties in beaten-down commercial real estate sectors such as malls and office buildings.

For years, these two types of properties have been toxic to investors. Actually, many industry observers probably think they still are. But an increasing number of companies are taking a chance that the bottom is near for both sectors.

Chief among them has been the Namdar Realty Group, an investment company based in Great Neck, N.Y., which has specialized in acquiring zombie malls since 2012. With partner Mason Asset Management, Namdar has been using cash to buy cheap B- and C-grade malls that are often in need of a facelift. It is estimated that by 2021, the two investment companies owned 100 malls scattered across the country.

In recent years, the companies have also begun to focus on office buildings. According to The Wall Street Journal, Namdar and its partners have acquired 10 office buildings for more than $480 million since 2021 in Chicago, Cleveland and New York City. 

Once again, they are following much the same strategy as with malls: Buy property at rock-bottom prices and cut costs to the bone. As the economy improves, so will their profit margins. It is a strategy that works if you can be patient. 

Another company that is reportedly taking the plunge is Norges Bank Investment Management, which manages the Norwegian sovereign-wealth fund. Earlier this year, Norges spent $1.9 billion to buy the rest of eight office properties it partially owned in Boston, San Francisco and Washington, D.C. In 2024, Norges bought an office building in Menlo Park, Calif. 

Such acquisitions are a sign that investors are showing increased interest in the much-maligned office sector. The total volume of office building sales was up 20% year over year in 2024 to about $63.6 billion, according to the Journal. While way below pre-pandemic levels, the sales increase is still notable.

Cushman & Wakefield reported that there were reasons to believe that the tide may be turning for office properties. Vacancy rates reached 20.9% at the end of 2024 and are expected to rise again in early 2025 before peaking later this year. But sublease availabilities dropped 2.6% quarter over quarter, signaling a stabilizing market. 

The construction pipeline is now about half the size it was at the end of 2023, a sign of a tighter market for new properties. Absorption of coveted Class A properties was flat nationwide, but it turned positive in some markets, another sign of more activity in the office space.

“What I would say is banks are getting less conservative with their lending standards and investors are getting a little bit more optimistic about where the office sector is at. We are seeing interest in the market improve.”

David Smith, head of Americas Insights at Cushman & Wakefield, describes the office sector as “healing.”

“What I would say is banks are getting less conservative with their lending standards and investors are getting a little bit more optimistic about where the office sector is at,” Smith said. “We are seeing interest in the market improve.”

Smith said the tight market means that subleasing will continue to decline in 2025. Typically, subleasing levels falling is a predictor that market vacancy rates will soon begin to fall as well. Smith said he expects the vacancy rate should peak this summer or in the second half of the year. When that happens, more people will begin to realize the sector is in an upswing.

Another sign of recovery is that Smith believes the office market is past its low valuation point. He maintains that the anecdotal reports of buildings that are going for 20% or 30% of the pre-pandemic value are not the norm. 

“I would say it’s a good time to buy the right asset at the right price,” Smith said. “In general, we are moving in the right direction as far as fundamentals go. The next 18 months to three years will also be the time for property owners to upgrade their assets. They aren’t going to be competing with a lot of new supply, so I think this is a good time to upgrade your product to Class A or A-plus level.”

As for retail, the sector already is in a quiet turnaround mode. Dan Diebel, an economist with CBRE Econometric Advisors, said that the retail market has downsized during the past decade and is now sitting at a record low vacancy rate, with available space at 4.7%.

“It’s been that low for about the last five quarters,” Diebel said. “Even with all the retail bankruptcies that make headlines.”

Diebel points out that a lack of available space combined with very little new retail space being delivered has helped to keep vacancy rates low and the demand for property strong. He said that retail went through an overbuilding period that ended in the late 2000s. That included the construction of too many malls that were located too close together and were trying to service the same population. But the mall inventory is declining, and some of what’s left is beginning to look attractive as higher property valuations are compressing capitalization rates. 

“The feeling I am getting from most investor groups that are looking at the mall space right now is that there are opportunities in that area,” Diebel said.