Landlord Stress Increases as Property Expenses Rise Faster Than Income

Elevated interest rates and office build vacancies are “raising the blood pressure of landlords everywhere.” The Chief Financial Office of Boston Properties said on a recent earnings call that “interest expense jumped by nearly $30 million last quarter, devouring its almost $15 million increase in rental income and then some.” Simultaneously to a rise in costs, occupancy rates within the company’s portfolio lowered year-over-year to 88.2% from 88.6% and quarter-over-quarter from 88.4%. Although leasing activity of 900,000 square feet was only slightly below 2023’s average of 1 million square feet per quarter, it was unable to offset the higher interest rate costs. Decisions by Boston Properties to “lower its 2024 forecast for funds from operations to about $7.04 a share from $7.10,” comes as the nearing expiration of a “cap that limits interest expense on a $1.2 billion term loan is expected to reset 75 basis points higher.”