As I say. And you know, there's so much bad news
in commercial real estate, but in a larger perspective, exactly where we are
at this point. What are you seeing in your business
specifically in terms of occupancy rates?
Are people really coming to the office yet?
Yeah. Well, David, nice to be with you.
I would say in summary that the sentiment is worse than the reality that
we're experiencing. So let's talk a little bit about usage
of buildings. There is a steady stream of corporate
announcements going on right now of companies returning to the office like
Amazon did on May 1st. Companies that were in the office three
days a week, moving to four days, even some companies saying we're going to
evaluate all the all new employees based on your office attendance at year end.
So you're seeing more and more of this. I think CEOs all want more in-person
work. They report they recognize that remote
work is like a benefit. It's like compensation.
You have to meet the market, but it comes with a real cost of productivity
and and culture. Are you seeing it in your buildings,
though, and actually people showing up? Because we have things like Castle Card
reporting, it's still like 50% in Manhattan.
Are you seeing it move up? So the building, we don't use Castle
systems and a lot of the landlords that we compete with don't.
So I know the industry uses their data, but so I'll tell you what we're
experiencing. So in New York, in Boston, Tuesday,
Wednesday, Thursday is more or less at pre-pandemic attendance.
I think Monday's about 60% of that peak and Fridays, probably less than 30% of
that peak. The West Coast markets where we operate,
Seattle, San Francisco and L.A., they're probably 50% of all those numbers.
So well behind. What about repurposing some of these
office buildings? Because we've heard a lot about that and
whether for residential or I think you've been big in life sciences,
actually, haven't you? Yes.
How is that going? Is is there too much of a move in the
life sciences? Are you seeing a glut?
Yeah. Well, let me talk about the repurposing.
We definitely have repurposed several office buildings successfully into life
science, and we've done it very carefully in some of the premier life
science markets in the country. But on the residential conversions which
you asked about, this is something that theoretically makes a tremendous amount
of sense. We need more housing in our cities, we
need less obsolescent office buildings, we need more real estate tax revenues,
we need more activity on the street. And when you repurpose an asset, the
carbon footprint of doing that is much lower than demolishing and
reconstructing. However, there there are obstacles to
doing all these things regulatory zoning requirements, residential zoning versus
commercial zoning, physical requirements.
The building has to be empty. The depth of the buildings residential
needs more light and air than office, and many office buildings have deep
floor plates and then financial. You know, to do a successful conversion,
the office building has to be contributed at something pretty close to
land value. So there it makes a tremendous amount of
sense. There are a lot of obstacles, but I
would think about it this way, David. There are 400 million square feet of
office space in New York. If 1 to 2% was converted, that's 4 to 8
million square feet of new housing. And it's also probably, you know, 5 to
10% of the vacant office buildings. So not a lot as a percent has to happen
for it to be meaningful. You raised the geography question
because you particularly are obviously in Boston, but also New York, San
Francisco, some of the cities have been hit a little harder when it comes to
residential I'm sorry, office space. Are you thinking about going to other
places? We hear a lot about Austin.
We hear about Miami. We hear about Florida.
Are you thinking about expanding into other geographic areas?
Yeah, well, we're very happy with our footprint.
We believe in having real estate where they're barriers to new supply and also
knowledge clusters of workers. And we think our cities have those.
There's clearly been some migration to the Sun Belt and there's been strong
growth in the Sunbelt markets, but there's also been a lot of development.
If you look at the vacancy rates in many of the Sunbelt cities, they've gone up
very significantly over the last year to 18 months and in many cases are above
the vacancy rates in the cities where we operate.
When you're in a particular position, which is a publicly traded company, the
largest publicly traded company when it comes to high end office buildings,
which means you have a lot of resources, access to resources, and you have to
there's a mark to market every single day in a sense, that's affected your
stock like releases. As you look at it right now, do you see
opportunities? I mean, are there bargains out there?
Because in fact, there are problems getting financing, the prices are coming
down? Yeah, I think there are.
We've so, for example, we launched at the end of last year a billion and a
half dollars of life science development in East Cambridge.
We're building a 600 plus thousand square foot lab building for AstraZeneca
at attractive yields to our shareholders.
We're also converting another significant office building in East
Cambridge to life science for the Broad Institute, also at attractive yields.
So those are the types of things that we've.
Been investing in. But I think as
this market evolves and there's more pricing discovery and a reset, I do
think it will create great opportunities for a well-capitalized player like BXP.