Urban Office REITs To Grow Rents in Anemic Macroeconomy

August 25, 2011

Gateway-city office REITs have outperformed other real estate investment trusts in the first half of 2011, and are expected to grow earnings and pricing power into 2012 as employers seek locations in metropolitan hubs to attract best-qualified workers, says John W. Guinee III, Managing Director at Stifel Nicolaus & Co. Inc.

“There are numerous examples of relocations from suburbs into more urban, public-transportation-oriented locations in both New York City and the Washington D.C. MSA. Therefore, our focus is on companies which have the highest concentration of assets in submarkets where we think there is a chance to grow rents,” Guinee said.

Guinee likes Boston Properties (BXP), one of the largest office REITs with significant presence in Boston, Midtown Manhattan, San Francisco and Washington D.C. Guinee says pricing power in the office REIT sector is limited to well-known metropolitan areas like the ones BXP has presence in.

“We think that within the office and industrial world, ability to grow rents is very, very limited to some of the well-known office markets, such as Midtown Manhattan and Midtown South,” Guinee said. “And the metro-oriented submarkets within Washington D.C. and some of the better submarkets in San Francisco, Boston and Los Angeles, specifically, Back Bay in Boston, West L.A. and the South San Francisco Financial District.”