Government-Leased Office REITs Outperform Peers
Office REITs with government tenants are outperforming those focused on major coastal markets like New York and San Francisco. Easterly Government Properties ($DEA) is up 13.9% year-to-date, benefiting from stable, long-term federal leases. The company reported higher funds from operations (FFO) for 2025, reinforcing the defensive nature of its government-anchored portfolio.
- While government-leased properties provide stability, the broader Chicago office market shows signs of distress, with downtown vacancy hitting a record 28.2% at the end of 2025. However, this has created opportunities for investors to acquire buildings at significant discounts, with some sales targeting residential conversions, particularly in the struggling East Loop and Central Loop submarkets. - In contrast to the office sector, the Midwest multifamily market is experiencing strong performance, driven by limited new construction and high demand. In Chicago, the multifamily vacancy rate was a low 5.0% at the end of 2025, with average rents growing by 3.4% and apartment cap rates stabilizing around 6.7%. - Easterly Government Properties' ($DEA) portfolio illustrates the security of federal leases; as of late 2025, its portfolio of 103 properties was 97% leased, with a weighted average remaining lease term of 9.5 years. This stability, however, comes with concentration risk, as three agencies—the Department of Veterans Affairs, FBI, and DEA—account for 47.3% of its annualized lease income. - For professionals transitioning into real estate investment, firms in Chicago prioritize candidates with strong analytical and financial modeling skills. Job postings for analyst and associate roles at private equity and investment firms frequently list proficiency in Excel and an understanding of metrics like Internal Rate of Return (IRR) as key requirements. - To understand how local institutional investors think, professionals breaking into the industry often read publications like *Crain's Chicago Business* for downtown market analysis and *GlobeSt* for broader Midwest commercial real estate news. - The bifurcation in the market is clear: newer, amenity-rich office buildings in Chicago's Fulton Market and West Loop submarkets command high rents, while older properties see declining values. This has led some investors, like Highland Park-based GTZ Properties, to acquire distressed suburban assets with plans for partial conversion to retail and entertainment. - Building a personal portfolio from scratch often starts with securing financing and creating a detailed business plan that outlines specific investment goals and market analysis. Before leaving a full-time job, experts recommend building a financial cushion to cover at least six to twelve months of living expenses to manage the transition period's inconsistent income.
