One of the largest office landlords in the country isn’t worried about the rise in remote working.
While the ongoing trend towards home working will have a long-term impact on the office market, the threat to class A office landlords is “overstated,” said Owen Thomas, CEO of Boston Properties, on Wednesday.
“The market is concerned … We acknowledge that it is,” Thomas said on the REIT’s second quarter conference call.
The expansion of remote work has been accompanied by a flight to quality, Thomas said, giving landlords in gateway cities or those with a heavy concentration of tech and life sciences tenants an advantage in the leasing market.
“I think management would like their employees to return to the office,” said Thomas. “And one way to do that is to have great offices.”
Across the portfolio, Boston Properties closed approximately 1.2 million square feet of leases in the second quarter – more than double its rental volume in the first quarter but 10 percent below the long-term average for the second quarter – with a weighted average lease term of 7.5 years .
“The Delta variant could slow the recovery, but I think the recovery will happen,” assured Thomas. “It’s not an if-question, it’s an if-question.”
President Douglas Linde said the vacancy rate in offices and life sciences was “basically flat” compared to the first quarter. Large employers “are moving forward with their space plans based on long-term growth plans,” and smaller companies’ space needs have been “very, very stable,” he said.
However, midsize businesses need more time to finalize their office-work balance, he added.
In New York, around 50 percent of employees who had access to the building in February 2020 now return to the office at least once a week. That’s 34 percent in Boston and only 20 percent in San Francisco.
“It varies a lot from market to market,” says Linde.
Boston Properties saw Funds from Operations per share increase 13.2 percent in the second quarter, primarily driven by better portfolio performance and higher-than-expected parking, hotel and retail revenues.
Revenue for the second quarter increased from $ 654.8 million to $ 713.8 million, an increase of 9 percent year over year.
Boston Properties will enter the Seattle market with a proposed joint venture purchase of the 800,000-square-foot, 50-story Safeco Plaza, 90 percent of which is let. The $ 465 million deal the company announced Tuesday is slated to close in September.
Boston Properties’ stock price was up about 2 percent in early trading Wednesday.
Contact TP Yeatts