2023-10-30 16:44:54 ET
The return to office has stalled.
With an average weekly occupancy rate of 49.8%, “you’re not seeing any more pickup from there,” said Ronald Kamdem, Morgan Stanley’s head of REIT and CRE, in a CNBC interview.
Tenants, he said, are being very deliberate, taking their time before committing to space leases.
Within the REIT sector, year-to-date yields are up 12.5% for data centers, up 9.9% for single-family rentals, up 2% for healthcare, down 1.4% for lodging, down 4% for apartments, down 5.6% for shopping centers, down 27.2% for infrastructure, and down 23.8% for office space.
Vornado Realty Trust ( NYSE: VNO ), one of New York City’s biggest landlords, has nearly 20M square feet of office space and shares about 17% over the past two months.
Leasing expirations at 1290 Avenue of the Americas will be a key driver for their occupancy outlook.
“If they're not able to get new announcements, new tenants to sign there, that's going to have a negative outlook for the market,” said Kamdem.
The company has no unsecured maturities until 2025, a price target of $12 by Morgan Stanley, and an estimated third quarter revenue of $451.5M.
They could also improve their capital structure with the potential sale of mortgages against the Farley Building in Midtown (390 Ninth Avenue).
“We think investors need to see more progress on delivering, and that could come in different ways, with asset sells to reduce leverage, which is tough in this environment, given how rates have moved,” said Kamdem. “The other way it could come about is if the company is able to grow out of it again, which becomes a very tough prospect if people are not really coming back to the office.”
Higher interest rates are having a tough impact on the real estate sector, which has been down 14% in the past three months.
More on Vornado Realty Trust:
- New York Office Risks Remain, But Vornado Is Appropriately Discounted
- Vornado Realty's 8.7% Yielding Preferreds For 60 Cents On The Dollar
- Vornado Vs. Kilroy Realty: I'm Upbeat On Both Of These High-Quality Office REITs - But Only Bought One
- Vornado Realty downgraded, Cousins Properties upgraded at Truist
- Charts favor three heavily-shorted REITs - BTIG
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A gloomy back-to-office environment has affected NYC’s biggest landlords.