BXP Sees Slowdown In Tech And Life Sciences Leasing
BXP, the largest publicly traded owner of office buildings, predicts vacancy will keep rising next year amid a slowdown in leasing from the technology and life sciences sectors.
The company executed 1.4M SF of leases in the three months ending Sept. 30, its strongest third quarter for lease volume since 2019, according to its earnings report filed on Tuesday. But the company saw its stock price drop by more than 3% Wednesday after a downward adjustment of its guidance for expected future cash flow.
BXP President Douglas Linde said on the earnings call that most activity in the office sector is from small and midsized financial and professional service firms that are seeking quality space. He said he isn't seeing growing demand from the tech sector.
“Tour activity continues to be strongest in the Boston CBD and New York City markets where the concentration of technology users is the least pronounced and the weighting of market occupancy leans more heavily towards financial and professional services firms,” Linde said. "It's hard to envision much technology-related demand growth in 2023."
The growing economic uncertainty over the course of this year, with the Federal Reserve hiking interest rates to combat inflation, has led tenants to slow their leasing activity, Linde said.
“There is less urgency from clients to make new commitments," Linde said. "We have conversations with potential clients during space tours who acknowledge that economic uncertainty is impacting space decisions as we consider our expectations for leasing completions in 2023.”
On the life sciences side, Linde said that its portfolio in Boston's suburbs hasn't seen the same amount of leasing success as Kendall Square in Cambridge. He said there is still availability in its buildings under construction in Waltham.
“The life sciences market has seen a significant slowdown,” Linde said. "We have available space on both of these developments that we are aggressively marketing."
Despite seeing a slowdown in suburban life sciences leasing, the REIT has begun to prepare more of its suburban office assets for conversions to life sciences.
"There are a number of other suburban buildings that we have been vacating in order to be in a position to redevelop them as lab buildings," Linde said. “These buildings are not yet under development. So they reduced the portfolio occupancy that we're showing at the present time. We have not made any commitments to begin any additional developments with these assets, but we are vacating these buildings intentionally.”
BXP’s Cambridge portfolio remained active last quarter with a 15-year lease with The Broad Institute of MIT and Harvard at 300 Binney St. in Cambridge, a proposed 240K SF office-to-lab redevelopment. The news of this lease came after BXP completed a $592M sale-leaseback agreement with Biogen for 125 Broadway St., a six-story, 271K SF building in the same area.
The firm also announced a retail lease signed at 760 Boylston St., part of Prudential Center. Although BXP didn't name the tenant, Dick’s Sporting Goods was reported in July to be in advanced talks for the 118K SF space that was formerly a Lord & Taylor.
Boston Properties has multiple redevelopments in the pipeline, including the 104K SF 140 Kendrick St. in Needham, Massachusetts, which is fully leased.
The company's sales last quarter included 601 Massachusetts Ave. in Washington, D.C., which sold for $531M, and a land parcel in Loudon County, Virginia, that sold for $27M. On the residential side, BXP said it entered an agreement to sell The Avant, a 15-story, 359-unit apartment complex in Reston, Virginia.
