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Boston Properties’ Stellar Q2 Earnings are Soured by Worsening Economy

Boston Properties recorded its best quarter of leasing since before the pandemic, but executives cautioned during its second-quarter earnings call that worsening macroeconomic conditions are creating new issues. The largest U.S. office REIT signed 1.9 million square feet of leases in the second quarter, the company’s highest total since the third quarter of 2019.

The leasing activity helped Boston Properties increase its year-over-year revenue by 8 percent to $774 million, and the REIT’s stock price jumped more than 2 percent on Wednesday after the earnings release. Despite the good news, storm clouds are gathering as the U.S. faces looming recession fears. “It’s clear over the last quarter that economic conditions in the U.S. and globally and deteriorated,” Boston Properties CEO Owen Thomas said during the earnings call. “The key culprit is inflation. This evolving operating environment is having several impacts on BXP operating activities.”

One way Boston Properties could be impacted is the increasing trend of tenants looking to give back space. Office sublease activity spiked 1.3 percent last quarter to 162.6 million square feet, according to JLL. Boston Properties President Douglas Linde said the firm’s East Coast portfolio is faring better than its holdings on the West Coast, mainly because the East Coast has more traditional financial and professional service firms. Linde said the return to the office “is going to be a journey,” and “any industry experts that tell you they know how a business is going to use their space, or what they even think remote or hybrid work actually means in 2024, is grossly overestimating their expertise.”

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