Thus, there's growing optimism that companies fully intend to be back in the office in the coming months. Most anticipate being primarily in-person as opposed to a hybrid model with remote work.
That's increasingly evident in the company's leasing and renewal activity. Thomas noted that in "conversations with clients, we have not seen a material reduction in space requirements." That suggests occupancy levels and rental rates should hold up in a post-pandemic world.
Meanwhile, a return to the office will help boost Boston Properties' ancillary revenue streams. As people return to the office, it should benefit the parking lots, hotels, and retails located in its office complexes, which represents $130 million in revenue potential.
That's one of several catalysts that could give the stock a booster shot. Others include its investments to build out additional life science space, a recent acquisition-focused joint venture, and its growing slate of development projects. These growth-focused investments should help the office REIT grow shareholder value in the future. Its nearly full-leased development projects alone will add more than $200 million in annual (net operating income) NOI upon stabilization in the coming years.
The case against buying Boston Properties
While a growing number of companies say they plan to return to their offices this fall, there's still a lot of uncertainty. Even though the pandemic is subsiding in the U.S. as more people get vaccinated, that rate has slowed considerably in recent weeks. Because of that, there's a real risk of a new infection wave this fall as unvaccinated people return to the office and schools. That could force companies to shift back to working remotely, which might cause some to rethink their long-term occupancy plans.
Another potential headwind for office REITs is the significant amount of vacant office space these days. Some companies let their leases expire, given the current uncertainty. Meanwhile, others are subleasing space because they plan to implement hybrid models and don't think they'll need as much room in the future. It could take the office market quite a while to absorb this space, weighing on occupancy, rental rates, and the need for development projects in the interim.
Lots of catalysts ahead
There's still some uncertainty about the future role of the office. However, a growing number of companies are aiming for a full return by this fall. As that happens, it could lift the weight holding down Boston Properties' stock. Meanwhile, the REIT should benefit from several other catalysts in the coming years, including the return of ancillary revenue, its life science investments, an acquisition-focused joint venture, and other development projects. These factors could combine to give the stock a big boost in the coming years, making it look like a compelling buy right now.