The softening office market is hitting office REITs, and Boston Properties is one of the firms taking some big hits. CEO Owen Thomas said in the REIT’s latest earnings call that “commercial real estate markets are currently in a recession.” Boston Properties, the nation’s largest publicly traded office landlord, is feeling the impact of many of its largest tenants, like WeWork, that have been cutting costs and office space.
Layoffs and office downsizing have been most prevalent for Boston Properties’ tech tenants, but President Doug Linde expects layoffs soon in the finance and legal sectors, too. One positive of the layoffs is that companies have more leverage in return to the office, which is showing up in the REIT’s portfolio. The number of unique occupants swiped into their buildings recently was up 40 percent compared to the best week in March 2022.
More robust occupancy numbers aren’t stopping tenants from shrinking footprints, though, and it’s hitting Boston Properties especially hard at two offices it owns in New York and Washington, D.C. The company absorbed a $51 million impairment charge at Dock 72 in Brooklyn, where the anchor tenant WeWork recently shrunk its footprint by two floors. Boston Properties took another hit at a D.C. building due to WeWork downsizing. With the headwinds so strong, CEO Owen Thomas said it will focus this year on managing leverage and liquidity. That will likely be the case for many office REITs in 2023.