Offices Are Back. It Could Give BXP Stock a Lift.

A street scene in Midtown Manhattan, in New York City, on Thursday. (Spencer Platt/Getty Images)

Key Points

• Office markets in coastal cities like New York and Boston are showing improvement, with increased leasing activity.
• J.P. Morgan upgraded BXP to Overweight with an $80 price target, representing a potential gain of about 12%.
• BXP’s quarterly dividend was cut to 70 cents from 98 cents, but the stock still yields about 3.9%.

Office markets in coastal cities like New York and Boston are starting to look up—good news for shares of BXP, the stock market’s largest diversified office real estate investment trust.

Shares of office REITs have been struggling with a host of problems, including the trend toward hybrid work and, until recently, relatively high interest rates. But major employers have been devising ways to get workers back to the office, and in September, the Federal Reserve finally resumed its program of gradually lowering rates, which should help revitalize real estate.

Industry data show the effects. During the first nine months of the year, businesses leased Manhattan real estate at a faster clip than they have in nearly 20 years, according to a recent Wall Street Journal report. In Boston, leasing demand is the highest it has been in five years, according to CBRE, a firm that tracks the numbers.

The trends should benefit BXP, the largest diversified office REIT, with a market capitalization of $12 billion, according to a J.P. Morgan note published Friday. Analyst Anthony Paolone upgraded the stock to Overweight from Neutral. His $80 price target represents a potential gain of about 12% from the shares’ recent level of $71.20.

“We believe the office market is in the midst of bottoming from an occupancy point of view,” Paolone writes. “We think BXP is winning the foot race when it comes to leasing.”

BXP shares have languished so far this year, delivering a loss of 0.5% in a stock market that has returned nearly 14%, partly because BXP cut its quarterly dividend to 70 cents from 98 cents last month. Analysts expect BXP’s funds from operations, the real estate industry’s equivalent of earnings, to decline about 3% for 2025, before returning to growth in 2026.

Still, there are reasons for optimism. The dividend cut saved BXP $55 million in quarterly cash that it says will be better spent on projects such as 343 Madison Avenue, a 46-story office tower that it is building near New York’s Grand Central Station. Even after the cut, the stock still yields about 3.9% based on the current dividend rate.

BXP’s high-end real estate portfolio could position it well for growth. BXP focuses on just six markets—Boston; New York; San Francisco; Washington, D.C.; Los Angeles; and Seattle. But it has a big emphasis on Boston and New York, which together represent nearly two-thirds of its portfolio.

Despite the improving outlook, BXP still trades at a discount to its peers. J.P. Morgan says the shares trade at 10 times the funds from operations expected for 2026, compared with an average of 10.6 times for other office REITs.

Opinions on Wall Street are mixed. Of 24 analysts that follow the stock, 14 have it as a Hold, while 10 have it as a Buy or Overweight. Still, the average target price is $78.89, 11% above where the shares trade today.

Write to Ian Salisbury at ian.salisbury@barrons.com