OPI - Office REIT stocks dip led by SL Green as vacancy rates rise Fed poised to hike

2023-06-28 15:53:28 ET

With the office vacancy rate continuing to climb and the Federal Reserve Chair Jerome Powell insisting that the central bank is not yet done raising interest rates , office REIT stocks dropped in Wednesday trading at a steeper pace than real estate staock overall.

Office REITs sank 2.8% in late Wednesday afternoon trading, compared with a 0.3% slip in S&P 500 Real Estate Sector.

SL Green ( SLB ) stock slid 7.1% , partly erasing a two-day 30% rally after a deal to sell a stake in 245 Park Avenue valued the building at $2B.

On Tuesday, Wells Fargo Institute issued a chart-of-the-week that showed the U.S. office vacancy rate rising to 12.9%. "This trend may continue as companies continue to re-evaluate their long-term needs for office space as their leases expire," wrote Global Alternative Investment Strategist Mark Steffen. "The fact that many companies continue to pay for underutilized office space may mask additional underlying weakness in current tenant demand."

With Powell sounding a hawkish tone, the probability of a 25-basis-point rate hike in July rose to 81.8% from 76.9% on Tuesday, according to the CME FedWatch tool.

Other office REIT stocks with significant Wednesday declines include: Office Properties Income Trust ( OPI ) -5.0% ; Vornado Realty Trust ( VNO ) -4.6% ; JBG Smith Properties ( JBGS ) -2.9% ; Kilroy Realty ( KRC ) -3.8% , and Paramount Group ( PGRE ) -3.0% .

SA analyst The Value Investor calls SL Green's ( SLG ) 245 Park Avenue deal a " promising partial sale, but not the end of all woes."

Meanwhile, SA Investing Group Leader Long Player said June 26's stock reaction to the deal shows that the early negative sentiment went way overboard.

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