BXP warned that cash flow will decline in 2025 for the third consecutive year and occupancy would remain sluggish due to continued tepid demand from tenants in the technology arena.
The firm formerly known as Boston Properties owns 10 million square feet of Manhattan office space, including the General Motors Building and 399 Park Ave. Those buildings are fully leased and command premium rents. Trouble is, other BXP-owned buildings aren’t nearly as popular.
“We have a concentration in Midtown South,” President Douglas Linde said on a conference call today, referring to the neighborhood popular with tech tenants before the pandemic but where office vacancy rates are now north of 25%. “Overall, tech demand in ’25 is still less than 40% what it was pre-Covid.”
A survey last spring from the Partnership for New York City showed the office-attendance rate among tech workers is 59%.
BXP said it’s in talks with a non-tech tenant to take up around 244,000 square feet at 200 Fifth Ave. Demand is picking up at 360 Park Avenue South, a newly renovated building that’s 77% vacant. Another tower at 510 Madison Ave. is finishing up an amenity upgrade and is “a great value in the market,” Linde said.
The developer forecast the occupancy rate across its 53 million square-foot portfolio nationwide would come in around 87.25% in 2025, down from 87.5% last year, according to BMO Capital Markets. Funds from operations would decline to around $6.86 a share for 2025, compared to $7.10 a share in 2024 and 2023’s $7.28 and 2022’s $7.53.
JPMorgan analyst Anthony Paolone described BXP’s earnings forecast as “particularly weak.” Its stock price fell by 5% in midday trading, to about $70 per share. The shares trade for half their pre-pandemic level, underperforming rivals such as SL Green and Vornado Realty Trust.
BXP officials said they plan to start development this year on a new office tower at 343 Madison Ave., although they haven’t landed an anchor tenant, and construction is unlikely to begin until someone agrees to lease a substantial amount of space.
Leasing activity last quarter was strong at 2.3 million square feet, the most since the spring of 2019. BXP is accepting less to lure tenants, with the average new rents 5% less than older leases at its New York properties. One analyst on the call noted that occupancy is expected to remain flat in 2025 even if the developer leases 3 million square feet and wondered if the same would hold true in the future.
