Office REITs Continue to See Growth Opportunities Across Variety of Markets

Office REITs presenting at Nareit’s REITweek: 2019 Investor Conference pointed to continued growth prospects, supported by positive leasing trends across a variety of markets.

Boston Properties, Inc . (NYSE: BXP) is expecting funds from operations (FFO) per share growth of 11% this year versus 2018, with continued growth in 2020 and beyond, CEO Owen Thomas said.

The company is also taking a disciplined approach toward acquisitions and is not launching new development projects unless they are pre-leased, he said.

Douglas Linde, president of Boston Properties, said the outlook for leasing by corporate American remains robust. In fact, between 2016 and 2020, the company started more developments with large corporate commitments than at any time in the company’s history, he said. Linde added that during the past seven to 10 years, the vast majority of expansion in demand has come from life science and tech tenants.

Colin Connolly, president and CEO of Cousins Properties (NYSE: CUZ), said the REIT is seeing “powerful headwinds” from the continued migration into its core Sunbelt markets, as well as rapid urbanization.

“Underlying fundamentals in our markets have been very strong,” Connolly said, with average rent growth of 5%, combined with steady or declining concessions. Meanwhile, Cousins’ proposed merger with TIER REIT, Inc. (NYSE: TIER) is expected to generate outsized returns, he added, while creating a land bank that supports 3.5 million square feet of development.

Meanwhile, Peter Brindley, executive vice president for leasing at Paramount Group, Inc. (NYSE: PGRE), said the office sector appears to be at the tail end of the densification trend: “The pendulum has come back a little bit toward a renewed focus on how we lay out our space to be the most productive.”

In New York, one of Paramount’s core markets, “midtown leasing fundamentals feel very good,” Brindley said, with an increasingly diverse set of potential tenants looking at space.

In other developments, Thomas pointed out that the flexible work space trend has been “very positive for the office business,” as it has aggregated demand and helped Boston Properties diversify its product offerings.