What is the primary focus when evaluating office assets?

When evaluating office assets, the primary focus on leasing risk, tenant stickiness, and the comparison between market rent and contract rent is crucial. This focus stems from the unique dynamics of office properties, where long-term leases with tenants can significantly impact the asset's value and cash flow.

Leasing risk pertains to the likelihood that existing tenants may default or choose not to renew their leases, which can lead to vacancies and reduced income. Understanding tenant stickiness—essentially how likely tenants are to remain in their current space due to factors such as location, amenities, and lease terms—provides insight into the stability of cash flows and occupancy rates.

Additionally, analyzing market rent versus contract rent is vital for determining the asset’s income potential. If market rents rise above the contracted rents, this indicates potential upward value pressures in the future. Conversely, if contract rents are high compared to market rents, it may signal potential future cash flow issues when those leases expire.

Focusing on these aspects allows investors and analysts to better gauge the health of the office asset, make informed decisions regarding investments, and manage risks effectively. Understanding these elements is fundamental to establishing the long-term financial viability of office properties.