BXP CEO Sees Return-To-Office Issue 'Continuing To Dissipate In Importance'
Momentum from companies requiring their employees to come back to the office is creating an environment where the impact of remote work won't be as big of an issue for office landlords.
That was the message from BXP CEO Owen Thomas on the REIT’s third-quarter earnings call Wednesday. Formerly known as Boston Properties, BXP is the nation's largest publicly traded office landlord, with more than 50M SF of properties in the Boston, Los Angeles, New York, San Francisco, Seattle and D.C. markets.
“I think it’s notable that groups like Amazon and Salesforce and particularly all the startup AI companies are saying, ‘You know what, this is a benefit we’re no longer able to provide. We need you to come back,’” Thomas said. “And I think those companies taking those actions will allow their competitors to take some more actions, because they’re all competing for talent.
“I think slowly, over time, this issue will continue to dissipate in importance.”
Amazon announced in September that all employees will be expected to come back to the office five days a week starting in January, a move that Thomas said should fuel a wave of momentum in the sector.
“Given Amazon’s scale and industry presence, this could be a harbinger for the policies of other technology companies,” Thomas said.
In addition to new in-office mandates, Thomas said he is optimistic about a variety of macroeconomic indicators' impact on the company.
“We believe the most important market forces for BXP — that being interest rates, corporate earnings, return-to-the-office behavior, outperformance of premier workplaces and valuation in the public and private markets — are all currently working in our favor, serving a tailwind for BXP’s performance,” he said.
During the third quarter, BXP’s leasing activity increased 5% from the same time last year. The REIT executed 74 leases totaling more than 1.1M SF, it reported, with a weighted average lease term of just over seven years.
The company leased 3.3M SF through the first nine months of the year, a 25% increase from the same period in 2023.
“Owen’s comments about the state of the economy and the zeitgeist of in-person work with colleagues is translating to improvements of leasing activity,” BXP President Doug Linde said on the call.
BXP's revenues also increased 4.2% to $859.2M for the quarter from $824.3M last year. The REIT reported net income of $83.6M in Q3, up from a net loss of $111.8M during Q3 2023.
Occupancy across its portfolio fell 10 basis points to 87%, the REIT reported, which was consistent with its expectations as a result of lease expirations. At the same time, its funds from operations declined to $286.9M from $292.8M in Q3 2023.
Linde said the level of improvement and demand “continue to vary greatly by market.”
That comes in part because of differences in return-to-office trends. He said the Boston, New York and D.C. markets are all at around 85% to 90% of their 2019 office usage levels, while San Francisco is around 65%.
“I do think there is a cultural difference between the business community on the West Coast and the business community in cities like New York and Boston,” Thomas said. “However, that differentiation I don’t believe will result in any difference in terms of the utilization of space from the company’s perspective.
“I believe we will see month after month, over the next number of months and years, a continual pickup on the West Coast.”
Linde said cities' submarkets where financial institutions, alternative asset managers, professional service organizations and law firms are concentrated most “are showing the most significant pickup in activity,” with those companies even absorbing more space.
“I would also note that the decision-making continues to be slow, and while more transactions are being completed, the process takes time,” he said. “Lots of time.”
