Most companies expected to finally bring all their employees back to the office this fall. Unfortunately, the delta variant threw a wrench in those plans, forcing many companies to delay their return to the office.
However, while companies pushed back their office reopening plans, they didn't cancel them. That's evident by the steady stream of new and renewal lease announcements by large real estate investment trusts (REITs). Here's a closer look at some of the notable leases office REITs have unveiled in recent weeks.
Manhattan remains the place to be
The death of the Manhattan office market has been greatly exaggerated. That's evident in the leasing activity of the city's largest office landlord, SL Green Realty (NYSE: SLG). The office REIT signed 63 Manhattan office leases through the first six months of 2021, covering more than 910,000 square feet. That kept its office occupancy level at a healthy 93.6%. Overall, these leases were only 1.7% below the previous rental rates on the same space, showing that the company isn't giving tenants a big discount to get them to sign leases.
While the delta variant delayed the office reopening of many companies, it didn't stop them from locking up future office space. For example, SL Green recently signed a 15-year, 26,263-square-foot lease with global enterprise software company UiPath (NYSE: PATH). That company is taking the entire 60th floor of SL Green's recently completed One Vanderbilt Avenue, a skyline-defining tower in the city. With that lease, the building is now 91% leased.
UiPath's CEO stated that the new space will provide "a great place for our team to work and collaborate, and an immersive experience to host customers and partners." Companies find those features highly desirable, which is why they continue to lease space in high-quality office buildings in major metro areas.
Moving with the trend
Another notable recent office lease was in Atlanta. Cousins Properties (NYSE: CUZ) announced that credit card giant Visa (NYSE: V) signed a long-term, roughly 123,000-square-foot lease at 1200 Peachtree. This space will support Visa's plans to create 1,000 new jobs in the Atlanta region over the next several years. It establishes the company's presence in the fast-growing city, one of the big beneficiaries of the Sun Belt migration trend.
Companies like Visa are increasingly relocating to and expanding in cheaper, warmer cities across the South, bringing jobs with them. That's driving more people to relocate to these cities.
Cousins Properties has been a big beneficiary of this trend. In the second quarter, the office REIT noted that 74% of the leases it signed during the period represented new or expansion space. It also pointed out that companies are focused on securing space where their employees would be "excited to come to work and collaborate with one another."
The REIT has been positioning itself for continued growth in office markets across the South by developing additional office space. For example, it recently formed a joint venture to invest $275 million into developing a 448,000-square-foot office, retail, and residential project in Nashville. Meanwhile, it started construction on a new 338,000-square-foot office building in Austin, Texas, with an expected cost of about $137.5 million. It believes these highly amenitized projects in fast-growing Sun Belt markets will attract high-quality tenants that want collaborative office space for their employees in the cities where they want to live.
Delayed, not canceled
While the delta variant pushed back the office reopening from this fall to sometime further in the future, companies expect it to happen eventually. Most want their employees back in the office, while many employees desire to return in some capacity.
However, one thing the pandemic did change is what companies look for in office space. They're increasingly seeking highly amenitized spaces that their employees will want to come to regularly, in the cities where they want to live. That's benefitting office REITs like SL Green and Cousins Properties, given their focus on owning high-quality office buildings in highly desirable cities.