This Office Landlord Reports Strong Leasing, Longer Terms

Published on Friday, May 3, 2024

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Rents in "premier workplaces" in CBDs are 50% higher than broader office market.

Boston Properties (BXP), one of the largest U.S. office landlords, reported strong leasing activity in the first quarter, with tenants opting to take longer-term leases that they did a year ago.

The REIT inked close to 900K SF of leases in Q1, a 35% increase compared to the Q1 2023 total of 600K SF, with a weighted average lease term of nearly 12 years, up from last year's average of about eight years.

BXP focuses on high-end properties in central business districts—the company calls them "premier workplaces"—which have been outperforming the broader office market by wide margins, CEO Owen Thomas said in an earnings call this week.

"We are continuing to defy the negative market sentiment for the commercial office sector," Thomas said.

BXP defines premier workplaces as "the best 6% of buildings representing 13% of the total space" in the CBDs that are the lion's share of company's portfolio, including NYC, Boston, San Francisco, Seattle and Washington DC.

Thomas said direct vacancy for premier workplaces is 11.2% versus 17.9% for the broader office market. Net absorption for premier workplaces has been a positive 7M SF over the last 13 quarters, compared to negative 30M SF for the broader market, he said.

"Asking rents for premier workplaces are 50% higher than the broader market, a widening gap from prior quarters," he said.

"This outperformance is evident in BXP's portfolio, where 89% of our NOI comes from assets located in CBDs that are predominantly premier workplaces. These CBD assets are 91% occupied and 93% leased as of the end of the first quarter," Thomas said.

BXP's leasing activity in Q1 included 32 new leases encompassing 494K SF and 29 renewals encompassing 399K SF.

Doug Linde, BXP's president, said during the call that the REIT's office properties in Boston's Back Bay and along NYC's Park Avenue "continue to have outsized demand relative to our availability."

"While concessions are still at elevated levels, we've been able to increase our taking rents and we actually have clients that we cannot accommodate due to a lack of available space in certain buildings," Linde said.