Workspace Property Trust is leading a group that's acquiring a roughly 8 million-square-foot portfolio of suburban office buildings in a deal valued at $1.13 billion, doubling down on its bet on increasing hybrid work and young adults leaving cities.

Office and light-industrial landlord Workspace, based in Boca Raton, Florida, and its partners bought 53 Class A suburban office buildings on 41 separate properties from Griffin Realty Trust, which is headquartered in El Segundo, California, the companies said Monday. Griffin plans to maintain a minority stake in the portfolio, which includes mostly blue-chip, single-tenant, net-lease office buildings in Ohio, Georgia, North Carolina, Illinois, Texas, Oregon, Washington, California and Arizona.

With the acquisition, Workspace's footprint expands to roughly 18 million square feet, with it owning and operating suburban office buildings in 14 of the top 20 U.S. metropolitan areas, including Atlanta; Philadelphia; Dallas; Tampa, Florida; Phoenix; Houston; Portland, Oregon; Seattle; Minneapolis; Chicago; and St. Louis. Workspace isn't finished with its office buying spree, which is targeted at $5 billion.

“You’re going to see us continue to do large acquisitions in this sector,” Thomas Rizk, the company's co-founder and CEO, told CoStar News.

Overall, the U.S. office market has taken a hit in the wake of the worst of the pandemic, as some employers allow staff to work from home part time or full time and some companies are slashing their headquarters space. But high-quality suburban office buildings are performing better, as companies try to accommodate workers including millennials, the group typically defined as those born between 1981 and 1996, who are more often focusing on living in the suburbs and don't want to commute and return to urban workplaces, according to Workspace.

The company is also banking on demographic shifts, such as aging millennials, now married and with children, relocating to the suburbs and wanting to stay closer to home for their jobs.

The group making the purchase was led by Rizk and Roger Thomas, Workspace's co-founder and president. GIC Pte. Ltd., based in Singapore and one of the world's largest global investors, is providing equity capital for the acquisition.

Workspace is convinced that there is a long-term shift underway in office occupancy to the suburbs. The company has seen office rents rise 7% from the first quarter of 2020 to the present, according to Rizk.

“We’re seeing some of our best leasing pipeline that we’ve had in years in suburban office,” he said.

With its expansion, Workspace will have a nationwide suburban office footprint and can become the preferred commercial real estate partner for Fortune 1000 companies, Rizk said. In effect, Workspace will be able to offer companies a “network” of office space, according to Rizk.

“From a leasing standpoint, we’re now a national platform that has over 200 buildings. … We’ve got the ability now to service large corporates in many of the major markets across the country,” he said.

Adding in the acquisition, about 40% of the Fortune 500 have headquarters in Workspace markets, and nearly 7 million square feet of the Workspace portfolio is leased by companies making up the Fortune 1000.

More than 66% of the total U.S. office inventory in the United States is in the suburbs, representing over 2.5 billion square feet. Suburban office markets are recovering at a faster pace than downtown markets with stronger rent growth and vacancy reduction, according to a recent CBRE report.

The vacancy rate for downtown office space rose to 17% in the second quarter, while the suburban vacancy rate fell to 16.8%, the first time in more than 20 years that the downtown vacancy rate surpassed the suburban rate, according to CBRE.

“We know in the last five years millions of Americans have moved from the cities to the suburbs and nearly one-third of all Americans today are considering moving away from cities post-pandemic," Thomas said in a statement. "This important demographic shift — core to our original contrarian thesis — is led by millennials, the largest workforce cohort in history, who appreciate the benefits of the suburbs and suburban offices: shorter commutes, lower crime, less need for mass transportation, more affordable housing, better schools and of course, safe and flexible workplaces."

In its most recent report on the overall U.S. office market, CoStar Group put the vacancy rate at 12.4%. "Uncertainty remains the prevailing theme, as firms continue to debate workplace schedules and assess real estate requirements," according to CoStar.

"Transaction activity has returned to pre-crisis norms, totaling around $107 billion in 2021, driven by healthy demand for well-leased, trophy assets," the report said. "After one of the strongest quarters on record, investment moderated a bit early this year, but still approached $50 billion by the end of June."

Rizk is the former CEO of what was then called Mack-Cali Realty — now Veris Residential — in Jersey City, New Jersey. In 1994, Rizk led the family-owned real estate partnership Cali Associates through its initial public offering as Cali Realty Corp. He also spearheaded the merger of Cali Realty into Mack Co. and Patriot American Office Group in 1997.

Rizk and Thomas created Workspace in 2015, investing in suburban offices when it was a contrarian real estate strategy. But now, fueled by workplace changes following the peak of the pandemic, more Fortune 1000 companies are rethinking their presence in downtown areas and relocating some of their office needs to suburban sites, including Intel, Oracle, McKesson, Tesla, Charles Schwab, Honeywell and Centene, according to Rizk.

A year ago, Oak Hill Advisors, a firm with more than $50 billion in assets, led the purchase of a $326.5 million stake in Workspace. At that time, Workplace said it was looking to make $5 billion in purchases over the next five years, according to Rizk.

“This is the first of those, and you’re going to see more of that,” he said.

The portfolio that Workspace just purchased includes properties with shorter weighted-average lease terms and higher estimated future capital expenses in relation to the balance of Griffin's portfolio.

As such, the transaction reduces the debt on Griffin's balance sheet and "de-risks" its portfolio "in consideration of current capital market conditions and the continued pressure that pandemic-related work-from-home trends are exerting on leasing demand and property valuations in the office sector," President and CEO Michael Escalante said in a statement.

Newmark served as adviser to Workspace on the debt financing. Seyfarth Shaw and McCausland Keen + Buckman served as legal counsel. Jordan Bock, founder of Mason Capital, served as strategic adviser and partner to Workspace and the consortium, and will serve on Workspace's board. Eastdil Secured, Goldman Sachs & Co. and BofA Securities served as financial advisers to Griffin. DLA Piper, King & Spalding, O’Melveny, and Hogan Lovells U.S. served as legal counsel.

Jordan Roeschlaub and Dustin Stolly, vice chairmen and co-heads of debt and equity at Newmark, brokered the debt for Workspace and Griffin.