Market Insights | US Office 2Q 2020

Tired of Living at Work? Explore news, trends & sound bites from the leading US Office REITs.

Fred Krom
October 5, 2020

SL Green Realty (SLG) – 7/23/2020

We have yet to hear a tenant of size say that work from home will be the predominant way to operate their business.

“We commenced buybacks again in late May taking advantage of extraordinarily low share prices. We've completed $163 MN of buybacks including $20 MN in early July, bringing total buybacks to $400 MN YTD.”

“Bid ask per spread is very wide given limited volume and bottom fishing. We’ve seen new entrants including pensions and overseas capital not previously active in NYC looking for deals.”

“We don’t see a meaningful shift to suburban markets. Looking out 5 years, the amount of demand spilling into outlying areas will be immaterial vs. the 400+ MSF of demand for NYC.”

“Densification was one of the greatest industry challenges the past decade. The densification trend is now dead in its tracks and will likely reverse itself. That is a much bigger and more positive influence for our business.”

Alexandria Real Estate Equities (ARE) – 7/28/2020

Rent collections are now over 99.5% and our outstanding AR balance as of June 30, represents the lowest balance in the last 12 years.

“All seven of our projects that experienced a temporary pause in construction are going forward with no current delays. We expect a one quarter delay (average) for those projects and no material movement in yields.”

“In 2Q, Healthpeak reportedly reached an agreement to buy life science property 35 Cambridge Park Drive in Cambridge, MA for $332.5 MN ($1,484 PSF at a 4.8% cap rate).”

“We had a little over 7 MSF of demand this time last year. Now, it's 3.5 MSF.”

Boston Properties (BXP) – 7/29/2020

We have good data for our CBD buildings in Boston, NYC, and San Fran. On any given day utilization is running sub 10%, with many days at 6% to 8%. It is similar in suburban locations.

“We also collected 98% of our office rents, 94% of our rents overall and completed 942k SF of new leases and renewals, including a 400k SF new lease with Microsoft at Reston Town Center.”

“The market is in discovery mode, as office transaction volumes fell 66% vs. 1Q. Sellers are on hold for pre COVID pricing given lower rates and the financing market is reasonably healthy allowing owners to refi.”

“There were a small number of transactions that closed in our markets over the last quarter providing evidence of continued liquidity and perhaps marginally higher cap rates.”

“In San Fran, the Townsend building in the SoMa district sold for $138 MN, a little over $1,000 PSF and a low fives cap rate.”

“We want to maintain current leverage levels and will not issue equity to raise capital.”

“Greater Boston is stronger than San Fran given the strength of life sciences in Cambridge and the ancillary businesses that surround it.”

Kilroy Realty (KRC) – 7/30/2020

COVID will drive adoption of more flexible work space that allow for greater design creativity with lower buildings to minimize elevator usage, larger floor plates, higher ceilings, and bigger common areas to accommodate social distancing.

“In the Bay Area, life science demand is now up to 4 MSF, up 1 MSF vs. tracking last quarter.”

“LA is doing well in certain sub markets like Hollywood and Culver City, where there is record demand from content producers. So, we feel very good about those two markets.”

“If you look at some of the renewals we've done, we've been able to increase our rental rates.”

“The direct vacancy rate in San Fran right now is about 5.4% and sublease is 2.5% of that. During the dotcom bust, direct vacancy was 8.3% and sublease space was 6.8%.”

“In May and June, there was definitely an uptick, I'd say, probably up to 25% to 35% occupancy based on our parking garages.”

Vornado Realty Trust (VNO) – 8/4/2020

For hundreds of years, cities have endured the central gathering places for work, living and culture and the cradles of creativity and innovation. This will continue to be the case.

“On 8/3, we reached a 730k SF lease with Facebook at our Farley Building, which validates the west side of NYC as the place to be and our plans to redevelop our 10 MSF of Penn District Holdings into the bull's eye location in New York.”

“In June, we decided to recap two trophy assets – 555 California Street and 1290 Avenue of the Americas – a contrarian move as many think the markets are frozen. We disagree. The world was increasingly awash with liquidity and there is really no competition in the marketplace.”

“Truth be told, it may take a couple of years for New York's ecosystem, tourism, sports, concerts, Broadway museums, restaurants, nightlife, etc. to return to normal levels.”

“The real estate financing markets are beginning to yield. The lenders are still in triage mode and highly selective in what they finance. Spreads are wider and churns more conservative.”

“Based on deals we finalized in 2Q, I have seen no real change to tenant space utilization, density, communal spaces, hang out spaces, food and beverage operations, etc.”

Market Insights | US Office 2Q 2020

Tired of Living at Work? Explore news, trends & sound bites from the leading US Office REITs.

Fred Krom
October 5, 2020
|
Office

SL Green Realty (SLG) – 7/23/2020

We have yet to hear a tenant of size say that work from home will be the predominant way to operate their business.

“We commenced buybacks again in late May taking advantage of extraordinarily low share prices. We've completed $163 MN of buybacks including $20 MN in early July, bringing total buybacks to $400 MN YTD.”

“Bid ask per spread is very wide given limited volume and bottom fishing. We’ve seen new entrants including pensions and overseas capital not previously active in NYC looking for deals.”

“We don’t see a meaningful shift to suburban markets. Looking out 5 years, the amount of demand spilling into outlying areas will be immaterial vs. the 400+ MSF of demand for NYC.”

“Densification was one of the greatest industry challenges the past decade. The densification trend is now dead in its tracks and will likely reverse itself. That is a much bigger and more positive influence for our business.”

Alexandria Real Estate Equities (ARE) – 7/28/2020

Rent collections are now over 99.5% and our outstanding AR balance as of June 30, represents the lowest balance in the last 12 years.

“All seven of our projects that experienced a temporary pause in construction are going forward with no current delays. We expect a one quarter delay (average) for those projects and no material movement in yields.”

“In 2Q, Healthpeak reportedly reached an agreement to buy life science property 35 Cambridge Park Drive in Cambridge, MA for $332.5 MN ($1,484 PSF at a 4.8% cap rate).”

“We had a little over 7 MSF of demand this time last year. Now, it's 3.5 MSF.”

Boston Properties (BXP) – 7/29/2020

We have good data for our CBD buildings in Boston, NYC, and San Fran. On any given day utilization is running sub 10%, with many days at 6% to 8%. It is similar in suburban locations.

“We also collected 98% of our office rents, 94% of our rents overall and completed 942k SF of new leases and renewals, including a 400k SF new lease with Microsoft at Reston Town Center.”

“The market is in discovery mode, as office transaction volumes fell 66% vs. 1Q. Sellers are on hold for pre COVID pricing given lower rates and the financing market is reasonably healthy allowing owners to refi.”

“There were a small number of transactions that closed in our markets over the last quarter providing evidence of continued liquidity and perhaps marginally higher cap rates.”

“In San Fran, the Townsend building in the SoMa district sold for $138 MN, a little over $1,000 PSF and a low fives cap rate.”

“We want to maintain current leverage levels and will not issue equity to raise capital.”

“Greater Boston is stronger than San Fran given the strength of life sciences in Cambridge and the ancillary businesses that surround it.”

Kilroy Realty (KRC) – 7/30/2020

COVID will drive adoption of more flexible work space that allow for greater design creativity with lower buildings to minimize elevator usage, larger floor plates, higher ceilings, and bigger common areas to accommodate social distancing.

“In the Bay Area, life science demand is now up to 4 MSF, up 1 MSF vs. tracking last quarter.”

“LA is doing well in certain sub markets like Hollywood and Culver City, where there is record demand from content producers. So, we feel very good about those two markets.”

“If you look at some of the renewals we've done, we've been able to increase our rental rates.”

“The direct vacancy rate in San Fran right now is about 5.4% and sublease is 2.5% of that. During the dotcom bust, direct vacancy was 8.3% and sublease space was 6.8%.”

“In May and June, there was definitely an uptick, I'd say, probably up to 25% to 35% occupancy based on our parking garages.”

Vornado Realty Trust (VNO) – 8/4/2020

For hundreds of years, cities have endured the central gathering places for work, living and culture and the cradles of creativity and innovation. This will continue to be the case.

“On 8/3, we reached a 730k SF lease with Facebook at our Farley Building, which validates the west side of NYC as the place to be and our plans to redevelop our 10 MSF of Penn District Holdings into the bull's eye location in New York.”

“In June, we decided to recap two trophy assets – 555 California Street and 1290 Avenue of the Americas – a contrarian move as many think the markets are frozen. We disagree. The world was increasingly awash with liquidity and there is really no competition in the marketplace.”

“Truth be told, it may take a couple of years for New York's ecosystem, tourism, sports, concerts, Broadway museums, restaurants, nightlife, etc. to return to normal levels.”

“The real estate financing markets are beginning to yield. The lenders are still in triage mode and highly selective in what they finance. Spreads are wider and churns more conservative.”

“Based on deals we finalized in 2Q, I have seen no real change to tenant space utilization, density, communal spaces, hang out spaces, food and beverage operations, etc.”

Market Insights | US Office 2Q 2020

Tired of Living at Work? Explore news, trends & sound bites from the leading US Office REITs.

Fred Krom
October 5, 2020
|
Office

SL Green Realty (SLG) – 7/23/2020

We have yet to hear a tenant of size say that work from home will be the predominant way to operate their business.

“We commenced buybacks again in late May taking advantage of extraordinarily low share prices. We've completed $163 MN of buybacks including $20 MN in early July, bringing total buybacks to $400 MN YTD.”

“Bid ask per spread is very wide given limited volume and bottom fishing. We’ve seen new entrants including pensions and overseas capital not previously active in NYC looking for deals.”

“We don’t see a meaningful shift to suburban markets. Looking out 5 years, the amount of demand spilling into outlying areas will be immaterial vs. the 400+ MSF of demand for NYC.”

“Densification was one of the greatest industry challenges the past decade. The densification trend is now dead in its tracks and will likely reverse itself. That is a much bigger and more positive influence for our business.”

Alexandria Real Estate Equities (ARE) – 7/28/2020

Rent collections are now over 99.5% and our outstanding AR balance as of June 30, represents the lowest balance in the last 12 years.

“All seven of our projects that experienced a temporary pause in construction are going forward with no current delays. We expect a one quarter delay (average) for those projects and no material movement in yields.”

“In 2Q, Healthpeak reportedly reached an agreement to buy life science property 35 Cambridge Park Drive in Cambridge, MA for $332.5 MN ($1,484 PSF at a 4.8% cap rate).”

“We had a little over 7 MSF of demand this time last year. Now, it's 3.5 MSF.”

Boston Properties (BXP) – 7/29/2020

We have good data for our CBD buildings in Boston, NYC, and San Fran. On any given day utilization is running sub 10%, with many days at 6% to 8%. It is similar in suburban locations.

“We also collected 98% of our office rents, 94% of our rents overall and completed 942k SF of new leases and renewals, including a 400k SF new lease with Microsoft at Reston Town Center.”

“The market is in discovery mode, as office transaction volumes fell 66% vs. 1Q. Sellers are on hold for pre COVID pricing given lower rates and the financing market is reasonably healthy allowing owners to refi.”

“There were a small number of transactions that closed in our markets over the last quarter providing evidence of continued liquidity and perhaps marginally higher cap rates.”

“In San Fran, the Townsend building in the SoMa district sold for $138 MN, a little over $1,000 PSF and a low fives cap rate.”

“We want to maintain current leverage levels and will not issue equity to raise capital.”

“Greater Boston is stronger than San Fran given the strength of life sciences in Cambridge and the ancillary businesses that surround it.”

Kilroy Realty (KRC) – 7/30/2020

COVID will drive adoption of more flexible work space that allow for greater design creativity with lower buildings to minimize elevator usage, larger floor plates, higher ceilings, and bigger common areas to accommodate social distancing.

“In the Bay Area, life science demand is now up to 4 MSF, up 1 MSF vs. tracking last quarter.”

“LA is doing well in certain sub markets like Hollywood and Culver City, where there is record demand from content producers. So, we feel very good about those two markets.”

“If you look at some of the renewals we've done, we've been able to increase our rental rates.”

“The direct vacancy rate in San Fran right now is about 5.4% and sublease is 2.5% of that. During the dotcom bust, direct vacancy was 8.3% and sublease space was 6.8%.”

“In May and June, there was definitely an uptick, I'd say, probably up to 25% to 35% occupancy based on our parking garages.”

Vornado Realty Trust (VNO) – 8/4/2020

For hundreds of years, cities have endured the central gathering places for work, living and culture and the cradles of creativity and innovation. This will continue to be the case.

“On 8/3, we reached a 730k SF lease with Facebook at our Farley Building, which validates the west side of NYC as the place to be and our plans to redevelop our 10 MSF of Penn District Holdings into the bull's eye location in New York.”

“In June, we decided to recap two trophy assets – 555 California Street and 1290 Avenue of the Americas – a contrarian move as many think the markets are frozen. We disagree. The world was increasingly awash with liquidity and there is really no competition in the marketplace.”

“Truth be told, it may take a couple of years for New York's ecosystem, tourism, sports, concerts, Broadway museums, restaurants, nightlife, etc. to return to normal levels.”

“The real estate financing markets are beginning to yield. The lenders are still in triage mode and highly selective in what they finance. Spreads are wider and churns more conservative.”

“Based on deals we finalized in 2Q, I have seen no real change to tenant space utilization, density, communal spaces, hang out spaces, food and beverage operations, etc.”

Insights