Snapshots

Office REIT leasing mirrors national rebound with 26% quarter-over-quarter growth

August 09, 2023

Contributors:

Office REITs with a primary focus on traditional office properties reported 8.1 million s.f. of gross leasing activity in Q2 earnings releases, growing 26% quarter-over-quarter and reflecting nearly 75% of 2019 leasing volume as activity tentatively improves across many markets.

Office REITs collectively own 278 million s.f. in tracked office properties, just over 5% of the overall office market, but a concentration of higher-quality assets drives their ownership to almost 10% of the Class A and Trophy market.

12 of 16 office REITs posted quarter-over-quarter growth in leasing velocity, the largest share seeing positive momentum in any quarter since 2019.

REITs are also reporting more prospective demand in the market: SL Green, Brandywine, Office Properties Income Trust, Cousins Properties, Paramount Group, and Hudson Pacific explicitly referenced growth in active leasing requirements during earnings calls or Q&A.

In an indication that markets may have overstated office price impacts, public pricing for office REITs has seen outsized positive momentum in recent months, with discounts to net asset value (NAV) declining from 51.8% at the end of March to 32.2% in the past week. Over that same period, real estate REITs as a whole saw discount to NAV narrow from 10.1% to 7.9%.

Net effective office rents have increased since the pandemic in most major CBDs

Sun Belt markets are exceeding 98% of pre-pandemic office leasing volume over the past six months

In-office policies drive stronger stock market performance