The commercial real estate recession is here, says Boston Properties

Office landlord doubts it will see positive absorption in portfolio this year as tenants cut costs

Boston Properties' Owen Thomas (Boston Properties, Getty)
Boston Properties' Owen Thomas (Boston Properties, Getty)

While all eyes will be tuned to Federal Reserve Chair Jay Powell’s press conference Wednesday for indications of whether the U.S. will slide into a recession, one of the nation’s largest office landlords says it’s already here for commercial real estate.

“Notwithstanding the running debate on whether the U.S. economy will experience a hard or soft landing, commercial real estate markets are currently in a recession,” Boston Properties CEO Owen Thomas said on the company’s fourth-quarter earnings call Wednesday morning.

Layoffs in the tech sector are spreading into other areas like finance and legal, Thomas said, prompting office tenants to cut costs and give back space. But high-end portfolios like Boston Properties’ will outperform the market in a downturn, he added.

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The company reported funds from operations of almost $293 million for the fourth quarter, up from $243 million in the same period last year. Its full-year FFO was about $1.2 billion, up roughly 15 percent from 2021.

Thomas said Boston Properties solidified its balance sheet by issuing a $750 million green bond offering, its fifth since 2018, and negotiating a $1.2 billion unsecured term loan facility, which it used to repay a $730 million loan set to mature this May.

Company president Doug Linde said it’s doubtful that Boston Properties will see positive absorption this year across its more than 50 million-square-foot portfolio.

“I can point to examples of companies in our portfolio that are growing, but we are the first to acknowledge that the pool of clients’ overall demand that we served is unlikely to be growing the overall footprint in 2023,” he said.