Even as investors start flocking back to office, one leading global asset manager remains bearish.

DWS Group has been more interested in industrial than office since 2018, and it isn’t planning to change that stance. In fact, the company would rather invest in any other asset class, the firm’s head of real estate for the Americas, Todd Henderson, told Bisnow.

“Nothing has changed in terms of the amount of capital required to keep office buildings leased, and there's a tremendous amount of volatility associated with cash flows because of that,” he said.

Office investors in major U.S. metropolitan areas are increasingly enthusiastic about the asset class, propelled by decreasing availabilities and an incremental increase in asking rents. Foreign investment into the U.S. office sector increased sixfold year-over-year to $877M in the third quarter, according to CBRE.

Frankfurt-based DWS has more than $1T in assets under management across four continents. Its Americas branch has been divesting of office properties since 2018 and now has less than 10% of its portfolio allocated to the asset class.

This year, DWS sold 505 Montgomery St. in San Francisco to Peninsula Land and Capital for $105M, CoStar reported. And it put a two-building office complex known as The Alhambra in Coral Gables, Florida, on the market with a $125M asking price, The Real Deal reported.

Office has the highest amount of capital per unit of NOI that needs to be spent, creating cash flow volatility and impacting overall returns, Henderson said.

While Class-A owners in the country’s most expensive market, New York City, can charge an average of $140 per SF, Crain’s New York Business reported, that’s not true for other markets.

In Downtown Seattle, which JLL says is bottoming out but is among the worst-performing markets — and where Cushman & Wakefield clocks overall vacancy at 35.1% — Class-A rents are less than half of that at $50.99 per SF.

Renovations to bring assets up to Class-A, the segment with rising occupancy rates across the country, cost hundreds of dollars per SF. But even with those investments, it is still only small, specific submarkets in cities with job growth that are performing well, Henderson said. He pointed to the Dallas submarket between Uptown and the Preston Center as an example.

"You can take other markets that are submarkets that are outside of that submarket within Dallas, and you will find that the markets are still deteriorating and not recovering,” he said.

DWS has no plans to allocate more of its investments to office properties next year and will likely continue to reduce its exposure, Henderson said. Even with recent office acquisitions like those close to Dallas-Fort Worth’s airport, the investor plans to demolish those properties and build industrial in their place.

The investor has spent 2025 targeting industrial and multifamily investments, like its August acquisition of a 65K SF self-storage facility in Tamarac, Florida. It has roughly 60M SF of industrial in its portfolio.

Its industrial plans hit a speed bump with the White House’s April 2 tariffs announcement, causing pauses for both industrial demand and space absorption.

But DWS’ fortunes have turned around during the year’s final quarter, fueled by e-commerce demand as big-box stores including Walmart and Chewy predict their sales will increase over the holiday period in spite of concerns about consumer spending dips amid economic uncertainty. Medical and drug businesses are also requiring more space, which DWS believes will continue into next year.

“I suspect that the fourth quarter will be one of the best quarters that we've experienced in terms of demand within our industrial portfolio,” he said. “The tariff regime has had a little impact on goods flowing.”

While 70% of its overall assets are still a mix of industrial and multifamily, DWS was marginally overallocated on industrial at the start of the year and has shifted its allocations slightly to favor multifamily, Henderson said.

DWS saw “unprecedented levels of new absorption” in Q4 2024 and Q1 2025 for multifamily and expects to see the asset class continue its trajectory into next year, he said.

“There's no reduction expected in home values, and mortgage rates are still significantly more expensive,” Henderson said. “That makes [for-sale] housing much more expensive than leasing.”

The asset manager is also examining new asset classes with promising returns, like retirement homes, as well as contemplating more new development.

“I expect that we will see a pickup in some of our development activity in 2026,” he said. “I expect that we will see more capital flowing to real estate in 2026 than we've seen in the last three years, as interest rates have reset.”

CORRECTION, NOV. 27, 2PM E.T.: This story previously misstated DWS' investment thesis regarding the amount of capital per unit of NOI for office. This story has been updated.