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Boston Properties Sees Leasing Velocity Hit 2019 Levels, Says Omicron Didn’t Impact Demand

The entrance to Boston's Prudential Center, a mixed-use complex owned by Boston Properties and home to the REIT's headquarters.

Boston Properties, the largest U.S. office REIT, has seen leasing demand recover to pre-pandemic levels in recent months, despite challenges posed by the omicron variant, it reported in its quarterly earnings release Wednesday.

The REIT recorded 1.8M SF of leasing activity in Q4, its busiest quarter for leasing since hitting 2M SF in Q3 2019, it said in a press release. The activity included several life sciences deals, including a pair of large lab leases last quarter in the Boston and San Francisco markets. It also inked a host of office leases in the Boston, New York, D.C. and San Francisco areas.  

The REIT's Q4 release, one of the first glimpses into a major landlord's year-end financials as earnings season gets underway, displayed trends in line with what the overall property sectors have experienced. Life sciences demand has been booming throughout the pandemic, and signs of an office market recovery began to emerge in many major cities last quarter

Q4 was the third consecutive quarter of increased leasing activity for BXP, and the 1.8M SF of activity was 55% above its Q4 2020 total, Boston Properties CEO Owen Thomas said during the company's quarterly earnings call Wednesday. He said the REIT has benefited from the flight-to-quality trend that has been accelerated by the pandemic. 

"This success can be attributed to not only our execution, but also the enhanced velocity and economics achieved in the current marketplace for premium quality assets with great amenities and transit access," Thomas said. 

The office occupancy rate across the REIT's portfolio totaled 88.8% as of Dec. 31, up from 88.4% the prior quarter.

Boston Properties also has more than 925K SF of signed leases in which the tenant has yet to move in that aren't included in the occupancy rate, and President Doug Linde said those tenants would boost the occupancy rate another 180 basis points. He said the landlord has another 1.4M SF of leases in negotiations as of this month.  

The REIT reported $731.1M SF of revenue last quarter, up 10% from Q4 2020, and its net operating income of $184.5M last quarter was up from $7.3M in Q4 2020. 

The rise of the omicron variant last month delayed the return-to-office efforts of many of the REIT's tenants, and it may have slowed leasing activity for a few weeks, but Linde said it didn't impact the overall recovery in leasing demand. 

"None of the leases that we have in negotiation have been delayed or impacted by a change in our customers’ need for space," Linde said on the earnings call. "While the month of December and the first two weeks of January were slow, our leasing team has had a very busy few weeks with more signed LOIs and more active discussions."

The largest Q4 lease BXP announced was a 231K SF life sciences deal for its entire 751 Gateway building in San Francisco. It didn't disclose the tenant, but the San Francisco Business Times reported last month that the tenant was biotech firm Genetch. 

The REIT said it signed 165K SF of life sciences leases last quarter in Waltham, Massachusetts, at its project at 880 Winter St. Also in Waltham, the company said it signed a 120K SF lease with an unnamed tenant at the office building at 1265 Main St. Linde said it is working on over 300K SF of office leases in Boston's suburbs. 

"Our traditional Route 128 office leasing is also extremely busy," he said. "There is office demand out there."

In New York City, Boston Properties said it signed a 108K SF lease at Times Square Tower and an 89K SF lease renewal at 601 Lexington Ave., though it didn't disclose the tenants. A Boston Properties spokesperson, in an email to Bisnow, declined to disclose any deal details beyond what was in the release.  

"Our current activity in New York continues to be strong," Linde said. "We have multi-floor lease negotiations underway at [the GM Building], 601 Lex and 510 Madison."

In Northern Virginia, Boston Properties landed a 100K SF lease with Peraton at Reston Town Center, the latest in a series of leases it signed at the mixed-use project since the pandemic began. 

"In Reston, our portfolio there materially outperformed both in terms of occupancy, deal flow and especially rental rates," Boston Properties Senior Executive Vice President Ray Ritchey said on the call. "We’re attracting the tenants that may be in an un-amenitized suburban campus coming back to the urban core in Reston Town Center."