Shares of big-city office landlord Boston Properties (BXP 3.03%) rose roughly 21% over the first six months of 2021 according to data from S&P Global Market Intelligence. That was roughly in line with the average real estate investment trust (REIT), using Vanguard Real Estate Index ETF as a proxy, but well above the 15% gain of the S&P 500 Index. To some extent this move was about recovering from the worst of the pandemic downturn in 2020, but there's a deeper story to understand here.
Wall Street generally tries to anticipate the future. This can lead to interesting, but not always accurate, assessments as emotions can cause disproportionately extreme reactions. For example, early in the pandemic in 2020, investors sold anything that might be affected by the coronavirus as if life as we know it were permanently over. Boston Properties got caught up in that downdraft. As successful vaccines started to roll out and government restrictions were eased, investors shifted gears and became more positive about the outlook for companies like Boston Properties. Indeed, occupancy at the REIT was roughly 89% at the end of the first quarter. While that was down from 93% at the end of 2019, it's hardly a sign of a business that's been completely upended. It makes sense that the glass-half-empty mindset has been tossed to the wayside.
However, at the same time, it would be foolish to suggest that Boston Properties, which owns office buildings in major metropolitan areas, is back to normal just yet. The move to working from home that was precipitated by the pandemic could have some legs over the long term and reduce the need for office space. Notably, in the first quarter, Boston Properties' new lease signings were at 84% of pre-pandemic levels. Like the occupancy number, this is hardly a sign of impending doom, but combined, the two metrics suggest that Boston Properties is dealing with a shift in customer behavior. So investors should probably take the stock price advance in the first half of 2021 with a grain of salt. Some notable headwinds remain.
At the end of June 2021, Boston Properties stock was down about 11% from where it started out in 2020, before the pandemic. To some extent, the price rebound looks as if it has taken into account both the positives and negatives here. Which means that investors need to really dig in and consider what's going on underneath the headline numbers, perhaps even looking at the portfolio city by city, before making a final call on Boston Properties. The REIT's business isn't going away, but what it will look like in the future is still hard to tell.