Fears of empty office districts and cleared-out city centers are increasingly a thing of the past in New York and San Francisco. Real estate investment trusts in these cities are reaping the spoils of returning white-collar workers.
In the first half of the year, office visits nationally increased 6% compared with the year prior, according to a Thursday report from Placer.ai, which derives its office index from cellphone geolocation data linked to roughly 1,800 U.S. office buildings.
The index was still roughly 31% below its prepandemic level, and not every city saw the same pickup. "Sunbelt markets Miami, Dallas, and Atlanta -- along with New York -- remained closest to their prepandemic office visit levels," the report says. "West Coast markets posted the fastest [year-over-year] growth, while slower markets such as Washington, D.C. and Denver continued to recover at a more gradual pace."
Landlords of prime office space are benefiting. Well-appointed buildings in locations near transit have been in high demand as employers calling workers back to the office seek to improve the experience.
As New York office usage stays strong and San Francisco strengthens, office REITs operating in the cities, such as the New York-based SL Green Realty, and the west coast-centric Hudson Pacific Properties are doing well.
A number of tailwinds are boosting office usage, says R.J. Hottovy, Placer.ai's head of analytical research. One is the rise of companies in fast-growing industries, such as artificial intelligence, that are seeking new leases to house expanding workforces. Another is the ongoing rollout of return-to-office mandates.
The draw of well-appointed and easily located office space also plays a part. Amenities such as food and beverage options, room for leisure activities, and athletic areas are among the things "that employers are doing to keep people in, visiting more frequently, and staying longer," Hottovy says.
That's one reason why operators of prime real estate, often referred to as class-A office, are doing well this year. Shares of Hudson Pacific, which operates in California and the Pacific Northwest, are up 36% this year, the stock's best performance on record from the start of the year through Aug. 13, according to Dow Jones Market Data.
The company raised its per-share funds-from-operations expectations for the full year to a range of $1.12 a diluted share to $1.20 a diluted share following its earnings report earlier this month.
The quarter followed Hudson Pacific's signing a 502,000-square foot 23-year lease with the city and county of San Francisco in June -- which it says was the largest office lease signed in the city since 2018.
"What you're finding now is high-quality space is getting grabbed quickly," Victor Coleman, Hudson Pacific's CEO, said on a call with analysts discussing results on Aug. 5.
Another beneficiary is SL Green. The stock is up 26% this year, on pace for its best performance in the same period since 2024, according to Dow Jones Market Data.
SL Green in July raised its expectations for funds-from-operations to a range of $5.60 to $5.90 a share for the year, an increase of $1.20 at its midpoint. A chunk of that increase comes from leasing at the company's One Vanderbilt property, a 73-floor commercial building located next to New York's Grand Central Terminal.
"Now, if we had simply increased FFO guidance by 40 cents-a-share for these operational successes, we would have been thrilled," Matthew DiLiberto, SL Green's chief financial officer, said on the company's earnings call. "But because we built one of the most successful and, more importantly, profitable buildings in the country here at One Vanderbilt, we're able to add another $0.80 of recurring, not one-time, FFO to our guidance revision."
Comments