US office leasing shrinks in Q3; Wyndham rejects latest offer from Choice Hotels

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Office leasing activity in the third quarter slipped 4.2% compared with the previous quarter, with larger markets recovering at a slower pace than their smaller counterparts, according to a report from JLL.

Gross leasing activity stood at 40.3 million square feet in the third quarter, coming from 41.9 million square feet in the previous quarter and 44.9 million in the third quarter of 2022, the real estate services provider said in its "US Office Outlook – Q3 2023" report.

Leasing across gateway markets was down 8.4% quarter over quarter, while secondary markets logged a 3.8% decline. Leasing in tertiary markets grew 4.9% quarter over quarter.

The decline in volume is concentrated within a few segments of the market, particularly technology companies and flexible office providers, while a large segment of office market demand has reached or is surpassing pre-pandemic averages over the past year.

The recovery of the US office market is expected to accelerate in the coming years, as most major employers now mandate that their employees adopt hybrid setups that require at least three days of office attendance for employees.

"With the majority of previously office-based employees returning to offices with frequency, opportunities to downsize office portfolios will continue to wane, and some groups may see expansionary pressures as attendance normalizes with larger headcounts than 2019," JLL said.

CHART OF THE WEEK: US REITs expected to report lower funds from operations in Q3 2023

⮞ US equity real estate investment trusts are forecast to report a 0.2% year-over-year decline in funds from operations (FFO), according to a consensus of analyst estimates.

⮞ The hotel and office sectors are expected to book the largest annual declines in FFO per share, down by median estimates of 12.5% and 10.7%, respectively.

⮞ The residential sector is expected to log the largest year-over-year FFO gain, at a median 4.1%.

M&A

– Wyndham Hotels & Resorts turned down the latest buyout bid from fellow hotel franchiser Choice Hotels International Inc., saying the offer undervalues its growth potential and the proposed deal comes with "significant business and execution risks." Choice Hotels' unsolicited offer has a nominal value of $90 per share, comprising 45% Choice stock and 55% cash.

Choice Hotels disclosed that it has been engaging with Wyndham for about six months, sending an initial bid in April valued at $80 per share, comprising 40% cash and 60% Choice stock. It bumped up the offer to $85 per share, comprising 55% cash and 45% Choice stock, prior to its latest bid.

– Skyline Champion Corp. subsidiaries Champion Home Builders Inc. and Champion Retail Housing Inc. completed the acquisition of Regional Enterprises LLC, a manufactured and modular housing company.

– CoStar Group Inc. is acquiring UK-based online residential property portal OnTheMarket PLC for about £100 million in a cash deal expected to close during the fourth quarter.

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