Washington Real Estate Investment Trust WRE, also known as WashREIT, recently announced that it has executed a 51,000-square-foot lease for its office property — Watergate 600 — with a leading global energy and infrastructure provider.
With this, two top floors of the property will be occupied by the tenant in January 2020, for a time span of 17 years and eight months. WashREIT acquired the iconic property at 600 New Hampshire Avenue Northwest in 2017, for nearly $437 per square foot of area.
Further, the asset recently received a facelift through an extensive renovation program that revamped the building’s entryway, lobby, elevators and common areas. Most likely, this overhaul attracted the new tenant at higher rents.
In addition to this, the building’s strategic location is anticipated to have aided WashREIT to ink the lease. In fact, Watergate 600 offers 300,000 square feet of premium office space adjacent to the Kennedy Center. Furthermore, proximity to the Foggy Bottom Metro station offers convenient access, making it an iconic business address.
Per management, the repositioning of this property has enabled the company to create value and re-lease majority of vacant space ahead of schedule. In addition, management believes the lease will drive significant same-store net operating income (NOI) growth in 2020 and beyond. Also, it will likely enjoy decent occupancy as the building has negligible annual lease expirations until 2026.
Nonetheless, tenant move-outs during fourth-quarter 2018 impacted occupancy in the company’s office portfolio. In fact, same-store ending occupancy shrunk 30 basis points (bps), year over year, and 40 bps sequentially to 91.7%. At the end of 2018, the company’s overall office portfolio was 92.3% occupied and 93.6% leased.
Shares of this Zacks Rank #3 (Hold) company have rallied 8.4% over the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Going forward, economic improvement and recovery in the job market will likely fuel demand for office spaces. This is because, as the economy revives, business grows and therefore, corporate sectors seek expansion, renting more space to accommodate the increased workforce. This is providing significant impetus to office landlords like Boston Properties, Inc. BXP, Cousins Properties Incorporated CUZ and Kilroy Realty Corporation KRC.
Banking on this favorable trend, WashREIT’s strategy to enhance its portfolio quality through redevelopment efforts bodes well. These will likely enable the company to retain tenants, and improve its leasing and occupancy metrics in the upcoming quarters.
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