Office investment tops $48 billion.

Institutions and offshore capital have reemerged as the leading investors in office properties, according to a new report by Granite Partners LLC, which highlights office investment trends for 1998.

According to the report, over $48 billion of office building transactions valued at $10 million or greater per transaction were recorded in 1998. This represents a 7 percent increase over total office investment recorded in 1997.

Investment volume slowed throughout the year, however, since REITs could not raise significant new capital in 1998 and the turmoil in the CMBS market disrupted many transactions in the fourth quarter. Investment in the fourth quarter diminished to a level that was 50 percent below investment achieved in the first quarter of 1998.

Other findings in the report include:

* As a percentage of total investment, REITs investment fell from 60 percent of all office acquisitions nationally in the beginning of 1998 to 20 percent by the end of the year;

* Pricing for office properties has stabilized at a level approximately 12 percent below the peak pricing achieved in the second quarter of 1998;

* Opportunity funds raised more than twice as much capital in 1998 than in 1997 and will be one of the greatest influences on the investment market in 1999;

* Investors perceive downtown "CBD" office properties as offering the greatest upside opportunity;

* Investment in Boston area office buildings surged 49 percent in 1998. Excluding the sale of the Prudential Center, one of the largest deals in the nation in 1998, investment increased 13 percent over 1997;

* The Los Angeles region is unique among major markets in that REITs were not the leading investors in office properties. Opportunity funds such as Whitehall, Douglas Emmet and Olympus were the leading acquirers of office buildings in the region;

* New York City was the most active investment market in the nation with over $6.7 million in transactions, representing approximately 14 percent of all office investment nationally;

* San Francisco was one of the favorite markets for REITs in 1998, which invested approximately $2.2 billion and accounted for nearly two thirds of office investment in the area;

* Private investors replaced REITs as the largest acquirers of office property in Washington, DC. REITs and institutions remain dominant in the suburban markets of DC.

"Institutions have re-emerged as one of the driving influences in the office markets," said Robert M. White, Jr., senior vice president of Granite Partners. "When the acquisition pace of REITs slowed in the second quarter of 1998, institutions doubled their investment in office properties. Capital for investment in existing office properties remains plentiful and now comes from a more diverse group of investors and traditional capital sources."

The Granite Office Investment Report also notes that real estate fundamentals and economic indicators are still positive for office investment.